Vietnam, a steady economic out performer in Asia, expects another surge in GDP growth this year due to spillover from the Sino-U.S. trade dispute and a discovery that its economy was previously larger than once thought.
Officials in the export-reliant Southeast Asian country believe the $300 billion economy will grow by 6.6% to 6.8% this year, the high end of a growth target, SSI Research in Hanoi says.
“They found that they understated their GDP itself, that’s one thing,” said Song Seng Wun, an economist in the private banking unit of CIMB in Singapore. “Second is, I think they have been one of the prime beneficiaries of diversification in supply chain after Donald Trump escalated the trade war.”
The government cited strength in manufacturing and exports as reasons for the 2019 forecast, SSI Research says. Both economic staples have solidified over the past year as multinationals shift production from China, hobbled by trade friction with the United States, to Vietnam.
Vietnam has leaned on export manufacturing since the late 1980s to rebuild a once war-torn country. Thanks to that focus, Vietnam is one of Asia’s fastest-growing economies, prosperous enough to expand a middle class over the past half-decade.
Income from some companies went unaccounted for, however, prompting the government in August to raise its previous GDP figure.
Haven from US import tariffs
Multinationals daunted by U.S. tariffs on goods shipped from China are moving to Vietnam, analysts point out. Some can produce and ship the same goods from just across the border without paying U.S. tariffs on a total $550 billion in goods made now in China.
“Sentiment about the migration of Chinese manufacturing, that’s a real thing now,” said Frederick Burke, partner with the law firm Baker McKenzie in Ho Chi Minh City. “It’s really happening, so that’s going to be driving up prices and driving up GDP a bit.”
China-based wireless earphone maker GoerTek plans to move production of Apple AirPods to Vietnam for an investment of $260 million, SSI Research said in July. In another migration case, Google will shift Pixel smartphone production from China to Vietnam, the Nikkei Asian Review reported in August. Google was unavailable for comment.
Some companies are trying to send goods made in China to Vietnam and re-label them as “made in Vietnam” for shipment to the United States, said Kevin Snowball, Chief Investment Officer with PXP Vietnam Asset Management in Ho Chi Minh City.
The increase in investment by China-wary manufacturers is putting pressure on land, labor and logistics, Burke said.
Low labor costs, pro-investment policies and lack of trade friction with the United States had already made Vietnam attractive to foreign factory investors.
Adding to its appeal, Vietnam is on track to enter a trade pact with the European Union after joining an11-country Trans Pacific Partnership free trade deal this year.
New measuring stick
Vietnam raised its actual GDP, the total amount of all goods and services, by 25.4% in August to account for money discovered between 2010 and 2017, domestic media say.
The General Statistics Office made that announcement after changing its “measurement method,” news website VnExpress International reported last month. The statistics office had missed the output of 76,000 companies when making earlier calculations, the news outlet said, citing a Vietnamese economist.
That addition to the GDP could give the growth rate a bigger-than-normal boost this year, Song said.
Faster growth later?
The economy should grow as high as 6.9% in the quarter ending this month, SSI Research says. PXP is forecasting 6.7% growth for the full year. That figure would go even higher if the Communist government allowed inflation to rise, Burke said.
Adding fuel to the economy, Vietnam is encouraging investment by software and high-tech hardware, especially if it promotes R&D. Intel, Samsung Electronics and contract assembler Foxconn Technology have made hardware investments to date.
Vietnam grew 7.1% in 2018, the highest rate in 11 years.
Expansion in the high sixes this year would still look “strong” in the context of a slowing world economy, Snowball said, but eventually spillover of manufacturing from China will taper because Vietnam’s population size cannot compare to China’s.
World GDP growth will sink to 3.3% this year from 3.6% last year, the International Monetary Fund forecasts.
“We’re still looking pretty strong; there’s plenty of relocation going on here,” Snowball said. “At some state, then it’s going to become problematic, because we can’t move everything from China to Vietnam.”