Despite near-term headwinds to national economic growth, Vietnam’s export-driven economy is expected to resume rapid growth over the medium term, as shipments to major markets rebound, said Rajiv Biswas, Asia Pacific chief economist at S&P Global Market Intelligence.
In a note late last week, Rajiv Biswas pointed out a number of key drivers that will continue to make Vietnam one of the fastest growing emerging markets in the Asian region.
First, Vietnam will continue to benefit from its relatively lower manufacturing wage costs relative to coastal Chinese provinces. Second, the country has a relatively large, well-educated labor force compared to many other regional competitors in Southeast Asia, making it an attractive hub for manufacturing production by multinationals.
Third, rapid growth in capital expenditure is expected, reflecting continued strong foreign direct investment by foreign multinationals as well as domestic infrastructure spending.
Fourth, Vietnam is benefiting from the fallout of the U.S.-China trade war, as higher U.S. tariffs on a wide range of Chinese exports have driven manufacturers to switch production of manufacturing exports away from China towards alternative manufacturing hubs in Asia.
Fifth, many multinationals have been diversifying their manufacturing supply chains during the past decade to reduce vulnerability to supply disruptions and geopolitical events. This trend has been further reinforced by the Covid-19 pandemic.
A key beneficiary of the shift in global manufacturing supply chains will be the ASEAN region, with Vietnam expected to be one of the main winners. Vietnam is already one of the preferred destinations for South Korean and Japanese firms choosing to shift their production to the ASEAN region, the note said.
The economist commented that Vietnam’s role as a low-cost manufacturing hub is also expected to continue to grow strongly, helped by the further expansion of existing major industry sectors, notably textiles and electronics, as well as the development of new industry sectors such as autos and petrochemicals.
Vietnam’s total GDP is forecast to increase from $410 billion in 2022 to $500 billion by 2025, rising to $750 billion by 2030. This translates to very rapid growth in Vietnam’s per capita GDP, from $4,150 per year in 2022 to $5,000 per year by 2025 and $7,300 by 2030, resulting in substantial expansion in the size of Vietnam's domestic consumer market.
The World Bank has revised down its Vietnam GDP growth forecast to 4.7% in 2023 and 5.5% in 2024, according to the bank’s October edition of its East Asia and The Pacific Economic Update.
The government targets a 6.5% growth this year, which was confirmed by Prime Minister Pham Minh Chinh in August. But achieving economic growth of 6% this year in the best-case scenario is an uphill battle, said Deputy Minister of Planning and Investment Tran Quoc Phuong on October 5.