January 4, 2016
When I look back on my 25 years plus in Vietnam, I feel that the present set of fundamentals are the strongest I have ever seen. I have been through the economic set-backs of 1990, when the Soviets withdrew their financial support, the Asian Financial Crisis and the Global Financial Crisis. The latter had the most significant impact on Vietnam and resulted in 7 years of reduced economic performance. I say reduced because GDP growth fell from a range of 7-8% in the 20 years before that to 5-6% over the period 2009 to 2014.
Strong measures taken by the Government in the last few years have reduced inflation, stabilized the currency in relative terms, reduced credit growth (which was a significant contributor to the 20% + inflation we saw a few years ago), and maintained a healthy growth in FDI and in exports. In addition, the country weathered the impact of the Yuan devaluation fairly well and has not seen any major impact from the start of the increase in US interest rates.
Vietnam now has the potential to get back to GDP growth rates of 7-8%, barring external shocks, and to maintain this for the next few years. The official GDP growth rate for 2015 was announced by the GSO at 6.68% and all commentators expect an increase in 2016.
With a thriving export growth, strong consumer demand, a young, skilled workforce, and political stability, makes Vietnam one of the most attractive investment destinations in the region.
This is without the expected positive impact of the recently agreed TPP and the signed European FTA. It has been well reported that Vietnam is expected to be one of the major beneficiaries of the TPP, when it comes into effect, however many investors are making longer term plans in anticipation of the TPP coming into force. A World Bank Report in December suggested that TPP could add 8% to Vietnam’s GDP growth, 17% to exports and 12% to capital stock over the next 20 years.
Consumer and business confidence is high, all of which auger well for the next cycle of higher economic growth. It is my personal opinion that we can look forward to at least 3-5 years of strong economic growth and the continued growth of the middle income population.