The report said elsewhere in Asean exports were falling year on year during the second quarter. But the Vietnamese economy grew at 6.8 per cent year on year in the first quarter on the back of manufacturing exports, developing services and rising agricultural output.
The US-China trade war has driven firms to cross the border into Vietnam to avoid Donald Trump’s tariffs.
The boost to Vietnam’s GDP is set to continue with the arrival of high-value manufacturing, notably from Foxconn, the Taiwanese manufacturer which may begin producing iPhones in Vietnam.
The UK report did caution that growth might be hindered by reduced Chinese demand for goods and rising trade protectionism.
Vietnam still heavily relied on China, the report said, with exports across the northern border accounting for around 10 per cent of GDP in 2017.
And from January to May, exports increased by 19.8 per cent while imports rose by 23.6 per cent, said Dang Van Thanh, chairman of the Vietnam Association of Accountants and Auditors.
The Foreign Investment Agency said international investment disbursed in January and February increased by 9.8 per cent year on year to around US$2.6 billion.
And Vietnam’s Ministry of Planning and Investment announced that foreign investment rose by nearly 70 per cent year on year in the first five months of this year.
Vietnam’s proximity to China and low wages ensure FDI remains strong in the medium term.
The country’s improving infrastructure, its signing up to trade agreements – like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, including Japan, Canada, and Australia – and outward-looking policies were also listed as favourable factors.
Mark Billington, one of the report’s authors, said while Vietnam’s economy was well placed to avoid the impact of the US-China trade war and other external factors that challenged Asean’s exports, measures were still needed to ensure foreign investment continued to flow.
Reforms were needed to improve the ability of employers to do business and to create adequate education and training to boost production, Billington added.
Vietnam faced challenges like slow institutional transformation, low-value addition in processing, sluggish labour productivity and limitations in education, the report added.
It said Asean’s overall GDP would grow by 4.8 per cent this year, down from 5.3 per cent last year.
There are downsides with attracting Chinese firms. Picture credit: Wikimedia