Vietnam is emerging as one of the few bright spots among Southeast Asian economies buffeted by the slowdown in regional and global trade.
Figures for third-quarter GDP showed the economy grew 6.8% year-on-year, up from 6% in the period from January to June, according to HSBC, and ahead of a Bloomberg consensus prediction of 6.4%.
The figures are not incontrovertible proof of a turnaround, since growth usually accelerates throughout the year. But when benchmarked against data for the same period last year (5.6% growth) there seems little doubt that Vietnam’s economy is well on the road to recovery.
The country’s highly resilient export sector continues to outperform, fueling the strong economic performance, and Vietnam is alluring to foreign manufacturers as a low-cost alternative to China.
While exports from most emerging markets continue to fall year-on-year, figures released at the end of September showed Vietnam’s merchandise exports grew by 9.6% from January to June.
Nevertheless, external headwinds remain a threat to Vietnamese manufacturers going forward. In September the Nikkei Purchasing Managers’ Index fell sharply, to 49.5 from 51.3 in August—the lowest reading since August 2013—and that drop offers a sobering outlook for Vietnamese manufacturers in the coming months.
Yet investors are encouraged by evidence of reforms elsewhere in the economy. The government is attempting to clean up toxic debts in the banking sector—debts that almost brought the economy to its knees in 2011.
Analysts say a lot remains to be done. “The government still hasn’t faced up to the scale of the problem,” says Gareth Leather, Asia economist at Capital Economics.
Crucially, credit growth is no longer acting as a drag on the wider economy, with lending rising 18.2% in August—up from 10.8% a year ago, according to HSBC.
Vietnam’s ruling Communist Party has recently called for a stepped-up fight against institutionalized corruption, which has plagued many state-owned enterprises in the past. Heavily indebted SOEs were responsible for the massive buildup of bad loans in the banking sector.
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