FOREIGN INVESTORS : VIETNAM ECONOMIC UPDATE – POSITIVE GROWTH BUT DO NOT OVERESTIMATE
POSITIVE GROWTH BUT DO NOT OVERESTIMATE
Improvement in Q4 2018 with many surprises (and abnormalities?)
GDP in Q4 2018 was +7.31% YoY, the highest in three quarters, pulling the overall growth of the year to +7.08% YoY, significantly higher than the target of 6.6%-6.8% and the highest level since the crisis in 2008. Therefore, it took 11 years for Vietnam to return to orbit growth of over 7% since 2008, although this is not really an impressive figure compared to the period of 2003- 2005 when Asian countries had growth of over 10% in the preparation phase before becoming “dragons”.
All three industries including Services; Industry and Construction; and Agriculture, Forestry, and Fishery had positive results in Q4, of which the Services industry increased noticeably by 7.6% YoY, the highest level of the whole year. In the components of Services, the top five largest sectors in term of value (accounting for 70% of GDP of Services) improved markedly in the fourth quarter.GDP of Wholesale and Retail trade remarkably jumped +8.9% YoY in Q4 2018 and +8.51% YoY for the whole year. This surprise rebound did not correlate with neither the employment condition index nor foreign tourist growth. The labor employed index (LEI) in the last quarter of the year only increased 2.6% YoY, the lowest level in seven quarters and slightly higher than the +2.2% YoY in Q1 2017, when the Telephone production sector faced many difficulties due to the Galaxy Note 7 incident. In the first quarter of 2017, GDP of Wholesale and Retail trade increased 7.38% YoY.
The number of international tourists in December continued to have slower growth of +11.7% YoY, much lower than the first 6 months of 2018 (+23.1% YoY). The deceleration of international visitors is due to the economies of the two main markets of China and South Korea (accounting for 55% of the total visitors) both declining quickly. In December 2018, the number of Chinese visitors to Vietnam decreased by 2% YoY while the same period in 2017 saw an increase of 91% YoY. Due to sluggish economic growth, the CNY devaluation has affected the purchasing power of the Chinese people while the cooling down of the wave of FDI investment was the cause of fewer Korean visitors. With the slow increase in international arrivals, it is hard to figure out how the GDP of accommodation and catering services increased by 9% YoY in the fourth quarter, twice the growth of the third quarter. In line with Industry & Construction, Manufacturing has returned to a leading role with the support of Construction sector. The GDP of the Manufacturing industry in the fourth quarter increased by 13.7% YoY, only slightly lower than the increase of 13.9% YoY of the first quarter, the peak period of telephone production. As mentioned in the last report, the rise of the Manufacturing industry in the second half of the year came from many factors, such as protectionist policies, and the ability to take advantage of them, and luck. On the other hand, telephone production has not shown any sign of recovery. Exports of telephones increased by 10.5% for the whole year, equal to 1/3 of the speed of 2017 and 1/6 of the first quarter of 2018.
Agriculture, Forestry and Fishery prospered mainly due to the recovery of the Agriculture industry with growth of 2.9% YoY after increasing only 1.9% YoY in the third quarter. Agriculture is dominated by rice so the increase or decrease in production as well as the price of rice has a great impact on the whole industry. 2018 was a positive year thanks to favorable weather and Vietnam’s success in bidding for many export contracts. All these factors helped maintain high rice prices. The average selling price of rice in 2018 was 14% higher than in 2017 while rice production increased by 2.9% YoY. Shifting to high quality rice varieties also brought good results. Rice exports increased only 4.6% YoY in volume but 16% YoY in value. Despite positive signs, the downward trend of rice exports and rice prices in the final months of the year put in doubt the strong recovery of the GDP of Agriculture in the fourth quarter.
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