‘Vietnam is the fastest-growing economy in ASEAN thanks to openness to FDI’

Posted on 17 October, 2024

HSBC’s Chief Economist for Asia-Pacific forecasts Vietnam’s GDP growth to reach 7% in 2024, the highest in Southeast Asia, driven by the country’s openness to attracting foreign capital.

This explanation was provided by Frederic Neumann, Chief Economist for Asia-Pacific Economic Research at HSBC, during the “Market Outlook 2024” seminar on October 15.

Last week, HSBC raised its growth forecast for Vietnam from 6.5% to 7%, making it the most optimistic among international organizations. This is also the highest growth projection in Southeast Asia that the bank has given for any economy in the region.

In the first nine months of this year, foreign direct investment (FDI) into Vietnam reached nearly USD 25 billion, marking an 11.6% increase compared to the same period in 2023, according to the General Statistics Office. The disbursed capital is estimated at over USD 17.3 billion, up by approximately 9%. Frederic Neumann emphasized the positive role of FDI and highlighted Vietnam’s success in attracting this valuable resource. “This is why Vietnam has become the fastest-growing economy in ASEAN this year, and it will continue to maintain this growth momentum into 2025,” he noted.

HSBC’s Chief Economist for Asia-Pacific, Frederic Neumann, advised that Vietnam should maintain its openness to foreign investment to continue “standing out among its competitors.” He pointed out that while some countries may offer substantial financial incentives, this does not guarantee success in the race. In addition to having numerous free trade agreements, Vietnam can attract investors through its competitive labor market, reliable power supply, and superior logistics infrastructure.

While remaining open to foreign direct investment (FDI), Vietnam should prioritize specific sectors and pay attention to environmental considerations. According to the expert, FDI is flowing into Southeast Asia and South Asia, and there’s no need to worry if occasionally some major projects choose other countries. Instead, Vietnam should focus on areas that require targeted incentives and attraction strategies.

For example, Thailand attracts the most Chinese investment in the region, primarily focusing on electric vehicles due to its heavy reliance on the automotive industry. Bangladesh mainly concentrates on textiles, while Indonesia’s FDI is largely linked to natural resources.

Investment in India aims to produce goods for the local market, whereas in Vietnam, it is geared toward export production. The chief economist at HSBC highlights that Vietnam’s most direct competition comes from Malaysia, which is also drawing significant investment in the electronics and semiconductor sectors.

In addition to prioritizing certain sectors, Vietnam needs to limit projects that cause pollution. “We certainly need to ensure that investors meet certain environmental standards, but we shouldn’t be overly strict because the competition is fierce globally,” he said.

HSBC forecasts Vietnam’s GDP growth at 6.5% next year, maintaining the highest rate in Southeast Asia. In addition to foreign direct investment (FDI), Frederic Neumann believes domestic consumption will play a more significant role as a driving force. “In the coming year, we will witness a shift from export reliance to a focus on the domestic economy,” he stated.

This change is occurring due to signs indicating a slowdown in the global trade cycle. Production orders are decreasing in many economies, and Vietnam’s Purchasing Managers’ Index (PMI) fell in September. While partly attributed to the impact of typhoons, the simultaneous decline in various component indices suggests a slowdown in demand.

As a result, exports are unlikely to serve as a strong growth driver as they once did. In contrast, domestic consumption remains optimistic due to falling inflation, which enhances purchasing power. “I believe that over the next 18 months, consumer confidence will gradually recover,” the HSBC expert remarked.

The bank also forecasts that from 2024 to 2029, Vietnam’s economy will grow by an average of $40 billion annually. This figure surpasses the incremental growth of Singapore and Malaysia but is lower than that of the Philippines and Indonesia. According to the General Statistics Office, the nominal GDP for 2023 is projected to reach $430 billion.

Source: VnExpress

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