VIETNAM ECONOMY IN 2018 – BEAT ALL ESTIMATES 

Vietnam economy growth hit a multiple year high in 2018, with top-tier growth in terms of global growth at 7.08% YoY, a pinnacle achievement and the highest since 2007. By sector, growth drivers originated from manufacturing (+12.98%) and construction (+9.1%), and also from the agriculture sector having posted growth at a 6-year high.  


By expenditure, final consumption increased 7.17%, and fixed asset formation jumped by 8.22% YoY. For retail sales, nominal growth is 11.7% YoY, and real growth was similar to last year (9.4% vs 9.3%). As for the tourism sector, Vietnam received 15.5 million pax of international tourist arrivals, another massive increase, this time at +20% YoY.


High growth still remains to be associated with low inflation. For the full year, CPI increased by 3.54% YoY on average, lower than the government target of 4%. Major drivers for the CPI in 2018 include the gasoline price, healthcare, food and the education fee. Core inflation is quite low, just 1.48% YoY on average.

 

 

In fact, the level of growth is close to the recent peak last seen from 2005 - 2007. The major difference resides within the quality of growth. During 2006 - 2007, the percentage of total factor productivity to GDP growth is quite small (around 5%), while it was 43.5% for 2018 (2016 - 2018 average: 43.29%). In layman terms, it means Vietnam needs less capital, yet requires a workforce increase in order to achieve a similar level of growth. Looking at the data, it becomes evident that the improvement in manufacturing and the construction sector, along with tamer inflation, resulted as key catalysts for this impressive growth.


On the investment side, in total there was an increase to 11.2% YoY (at about $80 bn, or 33.5% GDP), and once again the private sector led the charge on growth (+18.5% YoY), followed by the FDI sector (+9.6%) and then the public sector (+3.9%). Please note that in the breakdown, the public sector only includes 100% state owned enterprises, so there might be some other SOE investment counted in the private sector that comprises of part state-owned enterprises in the mix.


For FDI in particular, SSI saw impressive rebound for FDI into Vietnam during the final month of 2018. In this surprise upside report, newly registered FDI added $2.22 bn USD, and helped to pare the decrease of registered FDI in 2018 to about -13.83% YoY, totaling $25.6 bn. Disbursed FDI came to approximately $2.6 bn in Dec 2018, leaping by +73% YoY and pushing the full year number to $19.1 bn, a 9.1% gain from last year’s results. With such relatively high registered foreign investment being maintained (1.85x of annual disbursement), it could ensure further growth in terms of FDI implementation in 2019.


For FII, 2018 figures are also impressive at $9.89 bn, which also leaped nearly +60% YoY. So all together, registered foreign investment (FDI plus FII) was about $35.46 bn. 


On the monetary side, M2 increased by 12.5% YoY (2017: 14.19%), and credit growth was 14% (2017: 18.1%). It did show that monetary policy is more on the tightening side, which started from 2H 2018 after growth is in line with expectation and global volatility is rising. On the fiscal side, a budget deficit was not in sight, but the full year balance might be reported as deficit, as normally carry-over to 2019 is allowed. Anyway we could still say that state budget is at a surprisingly healthy level by end of 2018. This is mostly owed to the government that spent less than expected while development investment was at 65.1% of the full year plan.

 

 

The most impressive factor, amongst other things, for Vietnam is on the trade front. Export growth was 13.2% YoY ($243.5 bn), and import growth was 11.1% YoY ($236.7 bn), pushing the Vietnam trade balance to a huge surplus of $6.8 bn, a record high level. Beside decent export growth also seen in Machinery +28.2%; Camera +37.8%; Textile & garment +16.7% YoY, the key drivers for trade surplus come from (1) Strong net export of handphone (USD 33.21 bn in 2018 vs USD 28.84 bn in 2017), thanks to higher local content of mobile production and (2) Import substitution effect, thanks to the new operation of Nghi Son Refineries and Formosa production.

 

 

However, the instability factors still exist in 2018. Remarkably, the VND devaluation was quite strong in the second half of the year (due to negative effects from the US-China trade war), and there were many fluctuations in the real estate market. (due to the impact of the Special Law draft and the limited supply due to legal problems).