Standard Chartered: Manufacturing and Agriculture Strongly Support for Vietnam Economy

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Standard Chartered Bank continues to expect Vietnam’s robust GDP growth of 7.0% in 2018, driven by strong FDI-supported electronics manufacturing and rising consumption. Manufacturing and agriculture are likely to remain the primary growth drivers in the second half. 
The forecast is highlighted in the Bank’s recently published Global Research report on Vietnam entitled “Vietnam – Fast, not furious, growth”. 
Chidu Narayanan, Economist, Asia, Standard Chartered Bank, said: “Vietnam expanded 7.1% in the first half, moderating mildly in the second quarter after a record 7.4% growth y/y in the first quarter, in line with our forecast. This is the first year since the global financial crisis that the second quarter growth has been slower than the first quarter; we believe this is a sign of a focus on sustainable growth over the medium term. We expect the second half growth to remain robust, albeit mildly slower than in the first half.” 
“Vietnam is likely to remain the fastest-growing ASEAN economy in 2018 and 2019, as in 2017. We remain positive on Vietnam’s growth medium term on strong manufacturing activity, as FDI inflows to electronics manufacturing remain strong.” 
According to the latest macro-economic research report, manufacturing is projected to record another year of double-digit growth and agriculture growth will continue its recovery in the second half, even as construction slows down on more modest growth in the real-estate sector. At the same time, electronics export growth is likely to stay robust, albeit lower than in 2017, leading to a trade surplus and supporting overall growth. The Bank maintains its views that FDI inflows will stay strong in 2018 and 2019-20, with registered capital of close to USD 17bn each year, and FDI inflows to the manufacturing sector, particularly electronics manufacturing, will remain high in the medium term. 
The study also expects steady growth in services to support overall growth in 2018, led by strong domestic trading activity. The services sector, which makes up close to 40% of the economy, is likely to remain robust in the second half after rising by a steady 7.0% y/y in the first half. The rise of the business process outsourcing (BPO) sector, aided by a young, well-educated, low-cost labour force, should support services sector growth in the medium term. 
On FX outlook, Standard Chartered economists raise their USD-VND forecasts to 23,400 by end-2018 and expect a small VND depreciation in early 2019, before ending 2019 mildly stronger against the USD as positive domestic and external factors support the currency. 
Some highlights of Vietnam by Standard Chartered Global Research:
• GDP to grow by 7% in 2018 and 6.9% for 2019
• Strong export growth of c.18-20% in 2018, led by electronics
• FDI inflows to remain strong in 2018 and 2019-20, at close to USD 17bn each year 
• Inflation averages 3.7% in 2018, rising to 5.0% in 2019 on a low-base effect 
• USD-VND forecast at 23,400 for end-2018, 23,300 for end-2019 and 22,700 for end-2020.

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