Vietnam ended the first Quarter in 2018 with a high growth at 7.38% year on year (yoy), the highest Q1 growth in the last 10 years. Growth was genuinely strong in all sectors with agriculture at 4.05% (largest growth since 2011), manufacturing 9.7% and services 6.7%. However, high yoy growth was also partly due to last year’s baseline was quite low (in 2017, Vietnam’s economy experienced a slowdown at 5.1% in Q1).
Exports in goods continued to soar, increasing by 22%, mostly driven by significant increase in mobile phones & devices at 58.8%. Mobile phones & devices accounted for 22% of Vietnam exports but 99.7% are from FDI sector (mostly Korean invested companies). Regarding export market, EU was the largest importer of Vietnam in 1st quarter, with total imports from Vietnam amounting to $bn 9.8. The US and China ranked 2nd and 3rd at $bn 9.6 and $bn 9 correspondingly. The quarter also witnessed a surge in exports to China is driven by a significant rise of 674% in mobile phones & devices imports. However, it’s worth noting that Vietnam still hold a large trade deficit with China (around 37%).
Vietnam imports rose by 13.7%, mostly driven by the increasing in demand for mobile phone devices. China continued to be the largest exporter to Vietnam with $bn 14.3 export value. 50% of Vietnam’s bilateral trade with China is mobile phone related. On the one hand, it reflects the trading relationship between China and Korea where Korea-invested companies import mobile phone devices from China, process in Vietnam and then export to other countries including back to China. On the other hand, there is an increasing demand for Chinese mid- range products like Oppo, Huawei and Xiaomi. Korea, ASEAN, Japan and EU followed China in the list of top exporters to Vietnam. Though China is the largest exporter, Korea is the largest net exporter.
Inflation pressure went up but macroeconomic conditions remained quite stable. Inflation picked up slightly to 2.75% in the first quarter due to the State Bank of Vietnam’s expansionary policy and price pressure near Lunar New Year, but also due to a significant increase in public services and petrol’s price. It is expected that healthcare price will continued to be adjusted from 5-8% by the end of this year.
Together with 10 other countries, Vietnam signed off for CPTPP in Chile in March 2018. According to a World Bank report, joining CPTPP will increase Vietnam’s GDP by 1.1% by 2030. In case Vietnam implements necessary reforms to improve productivity of the economy, joining CPTPP even will help Vietnam to increase its GDP by 3.5% by the end of 2030. However, there are certain challenges of Vietnam’s domestic sector to compete with imported products. Fiscal conditions also need to be improved with potential tariff cut off as a result of joining CPTPP.
Reduced tariff due to ATIGA (Asean trade in goods agreement) commitments affect state revenue position. The government is finding different ways to increase domestic revenue, including introduction of ecotax, property tax and value added tax. Though a lot of efforts have been spent to squeeze public expenditure, there is still imbalance in public spending structure, in which recurrent expenditure accounts for 70%, while the proportion of public investment only accounts for 14.2%. The government also implemented trade protection measures, including non-tariff barriers. For example, while tariff for cars has been removed, a regulation on certificate of quality imposed by the government decreased car imports from Thailand (mostly Japanese cars) by 50%.
Source: British Embassy Hanoi