Surge in regional integration creates brighter economic outlook

In its May analysis on the economic outlook of ASEAN economies, sent to Nhan Dan Online, global analysts FocusEconomics state that Vietnam’s effectiveness in reining in COVID-19, and its pro-business policies and regional trade and investment commitments are expected to enable the nation to continue topping the region in terms of economic growth for 2021 and 2022 (see figure).

“The economy is forecast to expand rapidly this year, with growth set to outstrip its regional peers on strengthening domestic and foreign demand dynamics,” according to the FocusEconomics report. “Our panelists expect GDP to expand 7.1% in 2021, and 6.8% in 2022. Looking ahead, the economic recovery should gather pace later in 2021, with Q2’s output projected to be significantly higher than in the first quarter of the year.”

The Vietnamese economy grew 4.48% in Q1, the highest in the region. The government are targeting a 6.5% growth rate this year.

Leader in economic growth

Once among the smaller economies in ASEAN, Vietnam has emerged as a country poised for economic modernisation and is participating actively in competitive, export-oriented and service industries.

Since joining ASEAN, Vietnam has enjoyed years of robust growth and macroeconomic stability, a relatively stable exchange rate, and strengthened external trade relations. Registered foreign direct investment (FDI) reached a record high in 2019 of US$38.2 billion – up 7.2% year-on-year ,among the strongest in the region, while sitting at US$28.53 billion in 2020 as COVID-19 ravaged the economy. As of April 20, the figure was US$12.25 billion.

According to the International Monetary Fund (IMF), the Vietnamese economy’s total GDP is estimated to have been US$340.6 billion in 2020.

In late March, the then Prime Minister Nguyen Xuan Phuc, while talking about the country’s socioeconomic development plan for 2021-2025, stated that Vietnam could rank second in ASEAN in terms of its GDP scale.

“Vietnam’s GDP scale is among the world’s top 40 largest economies and fourth in ASEAN, with a per capita GPP of over US$3,500. Vietnam is also among the top 10 nations worldwide with the highest growth, and among the 16 most successful emerging economies in the world,” he stressed.

Recently, UK-based leading data and analytics company GlobalData, released a forecast that ASEAN economies are poised for a robust recovery with 6% in GDP growth in 2021.

With the continued expansion of trade and a gradual recovery in the tourism sector and construction activities, Singapore’s GDP growth is forecasted to increase to 5.8% in 2021. Similarly, Malaysia is set to witness a growth of 7.1% in 2021, a big upturn from -5.2% in 2020.

GlobalData forecasts Vietnam to be the fastest growing economy with real GDP growth of 8.5% in 2021. Vietnam’s growing trade with the EU and its robust fiscal policies have helped the economy witness an upturn in manufacturing and service sector growth. Strong demand, effective vaccine rollouts and resilient supply chains have put the economy on a faster recovery path.

The IMF also projected Vietnam will achieve the fastest GDP growth in ASEAN in 2022, at 7.2%.

Jonathan Ostry, deputy director of the IMF’s Asia and Pacific Department, said Vietnam has been performing much better than virtually all countries in the region last year. A rare positive growth number in a sea of negatives.

“Now, for 2021, the IMF is projecting very healthy growth for Vietnam. I think in the order of 6 or 7%. And you know, the message we have is to make sure you are continuing to support those who are vulnerable in your economy, as you have been doing, and continue with the vaccine rollout which has just started in Vietnam and is, hopefully, going to be accelerated very, very soon,” Ostry said.

In its “Vietnam macromonitoring” report released last week, the World Bank also said Vietnam’s economy is trending upwards.

“The industrial production index increased by 1.1% month-on-month and 24.1% year-on-year in April 2021. The continued expansion also reflects recovering domestic consumption in addition to solid external demand for high-tech manufacturing products,” said the report. “The most dynamic sub-sectors include beverages, clothing, and home appliances, basic metals, electronics, computers and optical products, and machinery. The Purchasing Managers’ Index (PMI) index rose from 53.6 in March to 54.7 in April, the sixth consecutive month of continuous expansion in manufacturing.”

The World Bank has projected Vietnam’s economy will grow about 6.8% in 2021 and, thereafter stabilise at around 6.5%.”

Trade facilitation

This year, Brunei is acting as ASEAN chair, with the whole region remaining stuck to implementing initiatives proposed by Vietnam as ASEAN chair last year and approved by the bloc’s leaders and partners. Initiatives on establishing an ASEAN COVID-19 Response Fund, ASEAN Regional Reserve of Medical Supplies, and an ASEAN Regional Centre on Public Health Emergencies and Emerging Diseases have received donations from many countries.

Notably, the Regional Comprehensive Economic Partnership (RCEP) was inked last November. China, Japan, Thailand and Singapore have approved the deal. Vietnam is expected to followed suit this year.

On November 15, the 10 ASEAN member states were among the 15 Asia-Pacific nations that signed RCEP. Together with China, Japan, South Korea, Australia and New Zealand, RCEP marked the world’s largest free trade agreement (FTA) by population and GDP, as well as being the first time China, Japan, and South Korea have entered into an FTA together.

The RCEP seeks to eliminate up to 90% of import tariffs between member states within 20 years of its coming into effect, as well as promote the flow of services and investment, while setting out regulations around rules of origin and intellectual property.

According to the Ministry of Planning and Investment (MPI), another enabler for Vietnam to further deepen its trade and investment ties with ASEAN is the ASEAN Comprehensive Investment Agreement (ACIA). In February, the country approved the fourth protocol amending the ACIA.

The ACIA aims at promoting trade and investment in the ASEAN region by building a free, open, and transparent investment regime. Vietnam has a significant opportunity to benefit from enhanced trade activities in the region. Without restrictions or discrimination, other member states will be more willing to participate in trade with Vietnam, and vice versa. Moreover, the ACIA focuses on five major sectors namely manufacturing, agriculture, fishery, forestry, mining, and quarrying, all of which are developing sectors with a high degree of potential in Vietnam.

Thus, Vietnam’s trade and investment activities are expected to benefit as a result of the ACIA and its fourth amendment, said pan-Asia consultancy Dezan Shira & Associates.

Big beneficiary

According to experts, under the ACIA and RCEP, investment from the Republic of Korea, Japan, and Singapore, now the three largest foreign investors in Vietnam, will increase in Vietnam and beyond.

Statistics from Vietnam’s Ministry of Planning and Investment show that as of April 20, registered investment capital from South Korea, Japan, and Singapore into Vietnam totaled US$71.57 billion, US$62.9 billion, and US$61.46 billion respectively.

According to analysis by the Peterson Institute for International Economics, Indonesia, Malaysia, Thailand, and Vietnam stand to benefit the most from the RCEP, which will add between US$2-4 billion each year to their respective economies by 2030.

“Meanwhile, panelists surveyed see Vietnam as the ASEAN country set to benefit most from the RCEP, likely due to its highly competitive export sector that will benefit from being plugged even more tightly into regional value chains,” FocusEconomics said. It cited Somprawin Manprasert, chief economist at the Bank of Ayudhya - the fifth-largest bank in Thailand in terms of assets, loans, and deposits – as saying, “Vietnam would benefit from integration under a number of effective FTAs, including the RCEP, the EU-Vietnam FTA, and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.”

The harmonisation of tariffs and rules of origin and simplifying of customs obligations under the RCEP present the principal benefit to ASEAN economies. As a result, manufacturing is set to gain from a relocation of labour-intensive industries to ASEAN countries, particularly those with competitive labour costs such as Vietnam.

Vietnam is now considered a global manufacturing hub for South Korea’s Samsung, which is focusing its funding into manufacturing electronics products in the northern provinces of Bac Ninh and Thai Nguyen, as well as Ho Chi Minh City, with total capital of over US$17.5 billion, in addition to a US$230 million research and development centre under construction in Hanoi.

ASEAN is now Vietnam’s fourth-largest export market, after the US, the EU, and China. Vietnam’s export turnover to the region surged to US$24.7 billion in 2018 and US$25.3 billion in 2019, and US$23.1 billion last year. The figure in the first four months of 2021 was US$8.8 billion, up 13.3% on-year.

Meanwhile, Southeast Asia is also Vietnam’s third-largest import market. The country’s import turnover from other member states totaled US$32 billion in 2018, US$32.1 billion in 2019, and US$30 billion last year. The figure hit US$14.1 billion in the first four months of 2021, up 48.2% on-year.

As of April 20, Vietnam had attracted US$88.32 billion in registered investment capital from ASEAN member states, including Singapore (US$61.46 billion), Thailand (US$12.7 billion), Malaysia (US$12.94 billion), Indonesia (US$613.7 million), and the Philippines (US$615.1 million).