Economic problems are building up around the world, but one country is bucking the gloomy trend: Vietnam.
The Asian frontier market’s economy expanded at 7.72% in the second quarter, leading the country to upgrade its full year growth target to 7%, up from the earlier official target of 6-6.5% and on track to be one of the world’s fastest growing economies in 2022.
Unlike China, Vietnam’s successful vaccination programme allowed it to lift Covid-19 restrictions late last year and fully reopen its factories. Covid shutdowns had held the country’s growth back to 2.6% last year, one of its slowest growth rates in many years, but since reopening the country’s “open for business” policy has continued to see many western manufacturers shifting production away from China to the country, not least Apple which announced it was moving iPad production to the country last month.
Apple now has 11 partner factories in the country, which is now becoming a major manufacturing hub in the region as companies attempt to diversify supply sources to avoid the disruption seen over the past year.
The country’s investment in building a high-tech workforce and infrastructure – supported by $15bn of fiscal stimulus - is expected to attract more foreign electronics manufacturers to the country in the coming years, and help it further diversify its manufacturing base.
That in turn is raising wages and increasing consumer spending, which along with manufacturing was a major contributor to recent robust growth, up 19.5% in the quarter. The reopening of tourism – which accounts for 10% of GDP - in March is also boosting growth.
Vietnam’s self-sufficiency in food production has also allowed to it escape much of the inflationary pain seen in Western economies, with HSBC last month downgrading inflation expectations for the country by 20 basis points to 3.5%. Although the World Bank has warned that Vietnam is still susceptible to higher energy prices, it’s sticking to its full year inflation target of 4%.
“Many countries in Asia are still providing an encouraging environment to enable expansion…Vietnam is still in growth mode,” said Craig Martin of Dynam Capital, manager of Vietnam-focused investment trust VietNam Holdings (VNH) in a recent interview with Vox, pointing to low interest rates in the country and continued credit growth.