Vietnam: Momentum ebbs slightly in Q2 but stays solid
June 28, 2019
Economic growth eased to 6.7% in the second quarter from 6.8% in Q1, according to recent data released by Vietnam’s Statistical Institute. Nevertheless, the economy was still likely among the fastest-growing economies in ASEAN.
The loss of momentum in Q2 was largely driven by a weaker performance from the agriculture sector (Q2: +2.2% year-on-year; Q1: +2.8% yoy), which still accounts for an important—albeit rapidly declining—share of GDP. The slowdown was potentially driven in part by the spread of swine fever leading to a fall in herd numbers. In contrast, the industrial sector gained speed (Q2: +9.2% yoy; Q1: +9.0% yoy), underpinned by a rebound in mining and quarrying output. Manufacturing growth, while ebbing marginally, was still in double digits. This was likely supported by low wage costs and notable improvements in the ease of doing business in recent years, which make the country an attractive base for manufacturing firms. The service sector grew 6.9% (Q1: +6.5% year-on-year), amid a strong labor market and a greater number of tourist arrivals.
Looking ahead, growth should remain well above the ASEAN average, supported by buoyant domestic demand and a blossoming tourism sector. Moreover, although slowing external momentum and trade war tensions pose downside risks, Vietnam should benefit from the diversion of supply chains from China.
Author: Oliver Reynolds, Economist