Vietnam’s First Quarter Growth and Currency Forecast

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April 9th 2018

Vietnam’s GDP growth in the first quarter of 2018 reached an 11 year high, at 7.38%, and exceeded current year forecast, in a quarter which is historically the lowest quarter for GDP growth. This is largely because the first quarter includes the main public holiday for the Lunar New Year, when virtually all manufacturing stops and this year was no exception with nearly all factories closing for a full two week period. This augers well for meeting or exceeding the target for the year of 6.8%.

The GDP growth figure was favorably impacted by the 11.6% growth in the Index of Industrial Production, far higher than that of the last 3 years and more than double the growth seen in the first quarter of 2017. The GSO has also stated that the confidence of both the local and foreign business communities. In a survey conducted in March of over 6,500 enterprises, 91% believe their second quarter production will be better than the first quarter.

These views are also supported by surveys of Japanese firms by The Japanese External Trade Organisation (Jetro) nd the European Chamber of Commerce in Vietnam.

It is also important to note that as Vietnam joins more multilateral and bilateral trade agreements certain sectors will benefit from further foreign investment from both new investors and increased investment from existing investors. It is widely expected that the EU Vietnam Free Trade Agreement will come into effect this year and of the European Companies interviewed by Eurocham Vietnam 50% looking to significantly increase investment. In addition the CPTPP the new TPP ex USA has also now been signed and is expected to be ratified in the next 9-12 months.

On another upbeat note, the Vietnam Investment Review based on interviews with some leading foreign banks is looking for the VND US dollar exchange rate to end the year between 22,500 and 22,900. This seems quite reasonable bearing in mind the expectations of a weakening US dollar and the record foreign exchange reserves of over US$ 50 billion, new FDI remittances of US$ 12-15 billion, an estimated US$ 6 billion from M & A activity and over US$ 10 billion from overseas remittances.

This all looks good provided there are no unforeseen external shocks which in the current environment cannot be ruled out.

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