Vietnam receives positive global exports outlook

 

“If there was a new wave of infections in Vietnam, it could still be relatively better off given that the situation is worse in many other markets and regions,” according to HSBC Global Research. 

Vietnam is not alone as Hong Kong, which had also largely contained the outbreak, has also seen a surge in cases recently, showing the risks are far from over and investors need to position themselves accordingly.

“Vietnamese authorities have done a good job in containing the transmission by far, which increases our confidence that the country is better prepared to deal with any further waves. 

“Vietnam is one of the best long-term growth stories in Asia.

“If Vietnam were a company, we would highlight market share gains, a strong balance sheet, robust growth, and good management. We maintain our positive view on Vietnam.” 

The pandemic and US-China trade tensions have urged companies to diversify their supply chains. Japan recently announced a first list of companies it will subsidise to relocate from China to Southeast Asia. 

Some 30 companies plan to move to Southeast Asia, half of which could move to Vietnam to produce medical equipment, semiconductors, phone components, air conditioners, and power modules.

The report, titled Asia Frontier Insights: Reassessing the markets: Vietnam encore, expected Vietnam’s GDP to grow by 3% this year, the only ASEAN country to have positive growth this year. 

Despite the outbreak, most economic indicators are showing signs of normalisation. The economy is getting back on track. Vietnam’s second quarter GDP growth was 0.4% year-on-year despite lockdowns and other impacts of the pandemic.

Retail sales rebounded by 6.2% year-on-year in June while industrial production grew by 7%. 

But experts warn that the pandemic is too unpredictable and could impact Vietnam more negatively than anticipated.

The Asian Development Bank has forecast Vietnam to grow at 4.1% this year.

In its latest update on June 18 it said developing economies in Asia would grow very little this year since preventive measures against COVID-19 have affected their economic activity while import demand has weakened.

The International Monetary Fund forecast the global economy to grow at minus 4.9% this year, the US at minus 8 percent and the EU at minus 10.2%, and China by only 1%. 

The World Bank expects the global economy to shrink by 5.2%, developed countries by 7% as domestic demand and supply, trade and finance have been severely disrupted and emerging and developing markets by 2.5%.

Trade pact

The EU-Vietnam Free Trade Agreement (EVFTA), which took effect on August 1, will reduce duties to zero percent on 71% of goods, rising to 99% in seven years. This should also be positive for Vietnam’s exporters in sectors like electronics and textiles, according to the HSBC report. 

Speaking at a recent meeting on trade cooperation with EU partners, Deputy Minister of Industry and Trade Hoang Quoc Vuong said bilateral trade has increased from about US$4.1 billion in 2000 to US$56.45 billion last year. Vietnamese exports to the EU were worth almost US$41.5 billion. 

With a population of more than 500 million and a combined GDP of over US$15 trillion, or 22% of the world’s GDP, the EU is the largest exporter and importer in the world with annual trade of US$3.8 trillion. 

Under the EVFTA, the EU will immediately remove import duties on 85.6% of tariff lines – equivalent to 70.3% of Vietnam’s exports.

After seven years, 99.2% of tariff lines, equivalent to 99.7% of Vietnam’s exports, will be eliminated. 

Vietnam will cut 48.5% of tariff lines, equivalent to 64.5% of EU exports, to zero immediately and 91.8% of tariff lines in seven years.