Vietnam: Manufacturing to remain the key driver of growth

GDP growth was unchanged at 4.5% y/y in Q1. Manufacturing activity surged, while the recovery in service sector activity and construction continued albeit at a more subdued pace as some localised social distancing measures were reinstated.

We expect robust exports, led by strong global demand for electronics, to continue to underpin solid economic growth over the remainder of this year with GDP forecast to rise close to 8%.

GDP rose 4.5% y/y Q1, unchanged from the previous quarter as another sharp fall in mining activity partly offset a strong pick-up in the manufacturing sector.

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Meanwhile, the recovery in services and construction from Q2 2020’s lows continued, although momentum continued to lag that of the industrial sector with the reintroduction of localised restrictions, including in Hanoi, at the end of January likely weighed on activity.

Positively, Covid restrictions have eased once again, and the vaccination rollout is underway. We expect the pace of recovery in services and construction to pick-up amid firmer labour market conditions and an acceleration in the disbursement of public funds, particularly for infrastructure projects.

That said, we expect the manufacturing sector, led by strong global demand for electronics, to remain the key driver of growth this year with GDP forecast to rise close to 8%.

However, aside from Covid-19 related risks, a key risk to the export outlook – and therefore overall growth – is that the US imposes higher import tariffs, after the US Treasury labelled Vietnam a currency manipulator in its December report. We do not expect any immediate action from the US. However, engagement between the two countries is likely to continue, with Vietnam likely to manage an appreciation in the dong versus the USD this year and possibly offering greater market access.

Source : Oxford Economics