Trade readiness improvements and economic dynamism are driving Vietnam’s trade growth potential.
|Source: Standart Chartered Bank's Trade20 report
Vietnam shows the strongest progress in trade growth potential in ASEAN, driven by improvements to its trade readiness and economic dynamism, according to Standard Chartered’s newly published research Trade20 Index.
The country owes its improving strength in trade readiness to infrastructure enhancements and improvements to its ease of doing business score, while its economic dynamism is driven by healthy growth, particularly in terms of export volumes. It is ranked sixth among 20 economies with the greatest potential for trade growth in the Trade20 Index.
According to the study, economic and political reforms over recent decades have spurred Vietnam’s economic growth, bolstered by strong domestic demand and manufacturing-led export success.
The market has solid foundations for growth: it is politically stable, well-located for global supply chains and has a relatively young population. The government has built on these foundations, focusing on business reforms and deregulation, investing in human capital and infrastructure and embracing trade liberalization.
The research also suggests that Vietnam’s growth is likely to continue to be driven by FDI-led manufacturing and export growth. Rising tourism inflows and stronger domestic demand, supported by higher wages, are also expected to help Vietnam sustain its strong growth.
The Vietnamese government has entered into a number of free trade agreements, with the latest being the landmark Vietnam-EU Free Trade Agreement, which is expected to eventually eliminate 99% of all tariffs and open up the public procurement and services markets.
While Vietnam may be particularly vulnerable to ripple effects from the US-China trade dispute, it may also be well-placed to benefit if it can absorb demand diverted to other locations as suppliers relocate from China, according to the Trade20 report.
With the ongoing US-China trade tension, foreign direct investment (FDI) is expected to continue to flow into the country as global businesses seek alternative low-cost manufacturing destinations. Standard Chartered Bank projects that FDI inflows to Vietnam will remain strong in 2019 and 2020 at close to US$15 billion.
“Vietnam’s economic openness and integration is paying off. The country has now become the fastest-growing economy in the region, a clear indicator of the benefits the country is reaping from an open economy.
With the government’s ongoing effort to improve its trade readiness and business environment, and continued strong FDI inflows into the country, Vietnam looks set for stronger trade growth,” said Nirukt Sapru, CEO Vietnam and ASEAN and South Asia Cluster Markets, Standard Chartered Bank.
Acknowledging the importance of digitization in the future growth of the economy, the Vietnam government has proposed plans to digitize 50% of businesses by 2025, with the digital economy then accounting for around a quarter of the country’s GDP. Standard Chartered Bank forecasts Vietnam is likely to enjoy robust growth in the near term, with its GDP projected to be close to 7%.
Standard Chartered’s Trade20 Index examined 66 economies across the globe and determined each market’s potential for trade growth by analyzing changes across three equally-weighted pillars, economic dynamism, trade readiness and export diversity.
While most traditional trade indices are based on a market’s present performance, the study captures changes over time to reveal the markets that have seen the most improvement in the past decade. This reveals the economies where recent positive developments may point to an acceleration in trade growth potential.