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1
Economist: Chris Portman, Senior Economist | e-mail: cportman@oxfordeconomics.com
6 Jun
2014
Vietnam
Highlights

Vietnams growth prospects have deteriorated slightly
due to both our slightly more cautious outlook for
intra-Asian trade and renewed territorial disputes with
China, whose businesses were targeted by unusually
large nationalist protests. Our GDP growth forecast
remains unchanged for this year at 5.6%, but we
have lowered our projection for 2015 to just under
6%. However, the medium-term outlook remains for a
climb back to 6-7% pa growth in 2016-17, fuelled by
ongoing inward investment and continued strong
export growth.
Improvement in US relations, helped by Chinas
quest for oil in disputed waters, may boost trade
prospects by sealing a Trans-Pacific Partnership
(TPP) deal with safeguards for vulnerable Asian
producers. TPP prospects will continue to attract
inward investment from China, which is excluded
from the pact and whose enterprises in Vietnam must
raise their local content in order to qualify.
Although inflation is subsiding only slowly from last
years 6.6%, greater confidence in price stability has
subdued fears of a renewed wage-price spiral.
Gradual inflation reduction in 2014-17 is underpinned
by the continued external surplus (allowing only
gradual VND depreciation) and less frequent energy
shortages as new power capacity starts up.
Trade exposure currently holding down industrial
prices may squeeze profitability and local investment
finance. But changing FDI composition confirms
expansion into higher-value clothing lines and non-
textile manufacturing, where exports are less price-
sensitive. Main investment risks are from internal
party resistance to reforms to scale back SOEs and
ease credit constraints facing private firms.



2012 2013 2014 2015 2016 2017
Real GDP growth (% year) 5.2 5.4 5.6 5.9 6.6 6.9
CPI inflation (%) 9.1 6.6 5.9 6.0 5.5 5.0
Exports of goods ($ bn)
114.6 133.5 148.4 164.5 181.7 200.4
Exports of services ($ bn)
9.6 10.6 11.5 12.5 13.7 14.9
Imports of goods ($ bn)
104.7 123.1 140.4 158.3 177.8 196.5
Imports of services ($ bn)
12.5 14.1 16.0 18.1 20.1 22.1
Exports of goods (% year) 18.2 16.5 11.2 10.8 10.5 10.3
Imports of goods (% year) 7.5 17.6 14.1 12.7 12.3 10.5
Current account ($ bn)
9.1 8.6 5.3 2.8 0.0 -0.6
Current account balance (% of GDP) 5.8 5.0 2.7 1.3 0.0 -0.2
Exchange rate per USD (year average)
20,828 20,933 21,101 21,834 22,437 22,945
External debt total ($bn)
59.1 52.2 48.0 45.8 45.7 46.2
Government balance (% of GDP) -4.2 -4.4 -4.5 -4.2 -3.7 -3.5
Population (millions) 90.8 91.7 92.5 93.4 94.1 94.9
Nominal GDP ($bn)
155.8 171.2 193.7 211.7 231.6 254.4
GDP per capita ($ current prices) 1,716 1,868 2,094 2,267 2,461 2,682
Forecast for Vietnam
(Annual percentage changes unless specified)
Country Economic Forecast

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Economist: Chris Portman, Senior Economist | e-mail: cportman@oxfordeconomics.com
6 Jun
2014
Forecast Overview

Stable growth despite new China tensions
Although this years growth forecast remains at 5.6%,
close to the 5.8% official target, downside risks have
worsened following a deterioration in relations with China.
Protests that damaged Chinese-owned businesses
during protests centred on Binh Duong province in May
will not seriously hit output, but may sour the investment
climate and could disrupt exports to China, especially
given the less buoyant outlook for intra-Asian trade.
The nationalist demonstrations, also witnessed in Hanoi
but quickly suppressed by police and plant workers,
followed Chinas deployment of an oil drilling rig near the
disputed Paracel islands, which was met by water-cannon
fire from Vietnamese ships and diplomatic protests by the
US and Japan. Vietnam rejects Chinas claim to the
Paracels and Spratlys, which is based on a note sent by
the North Vietnam prime minister in 1958.
These developments will restrain, but are not expected to
reverse, an upturn in the main industrial sectors (led by
textiles and wood products) that has been under way
since 2013Q3. Mays purchasing managers index was
the strongest since its launch three years ago. Our
forecast for 2015 has been lowered slightly, to 5.9%,
before a return to 6-7% from 2016, driven by:
Export growth sustained expansion of textiles and
other basic manufactures is opening up new sales
opportunities, especially into the Americas and Europe
where slower income growth favours cheaper
products. Exports were up over 20% on the year in
January-April 2014; a slowdown in May was mainly
due to lower rice sales to China, reflecting softer
demand (and sellers reluctance to cut prices) rather
than obstruction linked to the territorial rift. US pursuit
of a closer alliance in response to this raises the
chance of sealing the Trans-Pacific Partnership (TPP)
trade deal, if it lets Vietnam secure more safeguards
for vulnerable producers. Vietnams lower costs will
maintain Chinese textile producers incentive to invest
there, extending their joint ventures to yarn production,
weaving and dyeing to stay within TPPs country-of-
origin rules. Non-traditional exports including
electronics (where Japan is the biggest inward
investor) are now growing faster, and give substantial
scope for local suppliers to substitute currently
imported components.

0
3
6
9
12
15
1991 1994 1997 2000 2003 2006 2009 2012 2015
Source: Oxford Economics / World Bank
% year
Vietnam
Vietnam : Real GDP growth
F'cast
East Asia & Pacific

-12
-9
-6
-3
0
3
6
9
12
-12
-9
-6
-3
0
3
6
9
12
1996 1999 2002 2005 2008 2011 2014 2017
Source: Oxford Economics
US$ bn
Vietnam : Current account balance
% of GDP
F'cast
% of GDP
(RHS)
US$ bn
(LHS)

-10
0
10
20
30
40
50
60
70
1991 1994 1997 2000 2003 2006 2009 2012 2015
Source: Oxford Economics / World Bank
% year
Vietnam : Inflation
F'cast
East Asia & Pacific
Vietnam
Vietnam

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Economist: Chris Portman, Senior Economist | e-mail: cportman@oxfordeconomics.com
6 Jun
2014

Domestic investment domestic producers fixed
capital spending remained constrained in H1 by
continued limits on affordable credit (especially for
smaller non-state enterprise), caution on the short-
term consumer spending outlook, and pressure on
profits as trade-exposed firms absorbed cost rises
(especially for road freight and energy). Capital
spending should pick up in H2 as rising exports take
up more capacity and confidence about lower inflation
allows gradual easing of monetary policy.
Foreign investment import-substituting and export-
generating capital inflows are supported by a sharp
rise in FDI commitments in 2013, whose diversified
sources limit the damage from tensions with China.
While disbursed FDI fell 34% on the year to US$5.5bn
in January-May, with new project outlays down 17% to
US$3.7bn, the composition is shifting towards higher-
value manufactures. Korea is now the biggest source
of FDI (with US$1.3bn to date this year), with Japan
and China/Hong Kong both around US$630m on
Investment Agency data.
Moderate inflation although inflation is forecast to
stay close to 6% in 2014-15, its overall gradual
decline underpinned by an end to seasonal energy
shortages as new generation comes onstream is
quelling fears of further shocks, so helping to maintain
wage restraint. Lower hard-currency and precious-
metal demand this year, and a continued current
account surplus, albeit falling as imports rise, will
permit a gently path of VND depreciation, further
reducing the risk of imported input price shocks.
Privatisation agenda the government remains
committed to streamlining state-owned enterprises
(SOEs) in preparation for more equitisation to involve
private capital, and curbing SOE borrowing, which will
improve private firms credit supply.
Reform pace, trade access still uncertain
Medium-term risks are mainly on the downside, due to:
Ruling-party conservatism although nationalist
sentiment can help to quell opposition, the anti-China
riots may help hardliners to hold back the reform
agenda, including SOE downsizing and privatisation.
TPP risks negotiations on the TPP (offering low-
tariff access to the US for 11 Pacific Rim countries
excluding China) could stall over safeguards for less
efficient producers, or do widespread damage to
these if too many protections are given up.


-10
-8
-6
-4
-2
0
2
-10
-8
-6
-4
-2
0
2
1996 1999 2002 2005 2008 2011 2014 2017
F'cast
% of GDP
Source: Oxford Economics
Vietnam : Government budget balance
US$ bn
US$ bn
(LHS)
% of GDP
(RHS)

0
2
4
6
8
10
12
1985 1988 1991 1994 1997 2000 2003 2006 2009 2012
US = 100
Source: Oxford Economics / World Bank
Vietnam : GDP per capita* (US$)
Vietnam
East Asia & Pacific
All low & middle
income economies
*calculated using market exchange rates

0
1000
2000
3000
4000
5000
6000
7000
8000
9000
2012
Vietnam
Developing Asia
Emergers
$ PPP
Source: Oxford Economics / IMF
Vietnam : GDP per capita
Vietnam

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Economist: Chris Portman, Senior Economist | e-mail: cportman@oxfordeconomics.com
6 Jun
2014
Background

A programme of gradual economic reform, involving extension of market pricing and exposure to international
competition, got under way in 1986, and was followed by an acceleration of the growth rate to average 8.5% in 2005-07.
The rate slowed to average 5.8% during the global recession of 2008-09, but remained among the highest in the world.
The share of GDP under direct state control is now estimated at less than 40%. The Communist government has moved
on from selling shares in state-owned enterprises (SOEs) to outright privatisation, designed to impose capital- as well as
product-market discipline on management and assist the raising of new capital. Regulations have also been relaxed to
enable the creation of small private businesses and encourage the participation of foreign companies that can hold
stakes in domestic enterprises of up to 49%. Deregulation and trade liberalisation were sufficient to enable accession to
the WTO in January 2007.
The public sector consists of less efficient and less profitable enterprises that the government subsidises in order to
supply cheap inputs to downstream companies and avoid widespread loss of employment. As in China, the shake-out of
these industries has been postponed for political reasons; but the pressure to reform them has increased after WTO
accession and could cause social tension when it occurs. Shares in Vietcombank were floated in December 2007, but
three of the largest four banks remain in state ownership. While the ceiling on individual stakes in banks was raised to
20% (from 10%) after joining the WTO, foreign stakes remained capped at 30%, compared with 49% in other
enterprises. State-owned banks asset quality has been improving, but they remain more weakly capitalised than those in
the private sector and below international standards. Banks remain the principal source of corporate finance; the stock
market remains small and 95% domestically-owned, with market capitalisation just 40% of GDP at end-2009 after a
prolonged fall in prices from the March 2007 peak.
Vietnam is the worlds second largest exporter of coffee (after Brazil), having become world leader in the robusta variety
used in instant coffee, and is a major exporter of other commodities including rubber, rice, pepper and tea. Oil production
and exports have risen after new discoveries by joint-ventures with Chinese and western firms. Manufacturing output is
growing rapidly, with import substitution set to turn to exports in such areas as vehicles and electrical and electronic
goods and Vietnam becoming a nearshore production base for low-cost supplies to China or third-country markets.
Foreign-invested plants generated around two-thirds of exports (and over half of imports) in 2013, on Foreign Investment
Agency data.
Membership of the Association of South-East Asian Nations (ASEAN) since 1995 and the WTO since 2007 has enabled
export-oriented companies to build share in previously protected markets. But it has also meant increased competition
from imports for many domestically-focused firms that previously enjoyed protected local markets, some of which
became over-indebted during rapid pre-2008 expansion (notably shipping group Vinashin, which defaulted on its
eurobond debt in 2010). The textile industry survived loss of subsidies and intensified competition from Chinese exports,
and employed 2m by early 2010, with strong export growth due to outsourcing especially from the US. But it remains at
risk from rising wage and energy bills, and, lower-cost country competition. Farmers are also vulnerable; many rely on
subsidies and tariff protection, and the need to keep domestic food costs down limits exports to more lucrative foreign
markets. While investing in rural infrastructure to improve efficiency and open up new agricultural markets, the
government is also planning for a faster exodus of rural labour in search of city-based jobs. Tourism accounted for
around 6% of GDP and 5% of FDI stock in 2012 (on official data), but remains underdeveloped in regional comparison.
Most of Vietnams population was born after the war. Literacy is 94% (2009 census) and near-universal among the
younger generation, whose leaders are increasingly studying in Western Europe or North America, while senior
managers and government officials often got technical training in Russia or Eastern Europe. The working population is
still growing; but after 1.2% annual growth in 1999-2008, the population is now rising less quickly as the birth rate falls.
Japan remains the biggest inward investor and aid donor, but business and educational links with China are expanding,
despite diplomatic tension due to territorial disputes. Relations with the US are largely restored, and Vietnam is one of
the ten ASEAN countries with which the US (now the regions largest export destination and investment source) has
signed a trade and investment pact, laying foundations for full free trade.
Vietnam


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6 Jun
2014
Economist: Chris Portman, Senior Economist | e-mail: cportman@oxfordeconomics.com







Key Facts
Politics
Head of state: President Truong Tan SANG
Head of government: Prime Minister Nguyen Tan DUNG
Political system: Communist party rule
Date of next presidential election: 2016, elected by legislature
Date of next legislative election: 2016
Currency: Vietnamese dong (VND)
Long-term economic & social development
1980 1990 2000 2011*
GDP per capita (US$) - 98 402 1507
Inflation (%) - - -1.7 18.7
Population (mn) 54.9 68.9 80.9 89.9
Urban population (% of total) 19.2 20.3 24.4 31.7
Life expectancy (years) 67.4 70.5 73.6 75.5
Source : Oxford Economics & World Bank
Structure of GDP by output * 2011 or latest
2012 available year
Agriculture 21.3% Source : CIA Factbook
Industry 39.9% Southeastern Asia, bordering the Gulf of Thailand, Gulf of Tonkin,
Services 38.8% and South China Sea, alongside China, Laos, and Cambodia
Source : World Bank (CIA Factbook)
Long-term sovereign credit ratings & outlook Corruption perceptions index 2013
Foreign currency Local currency Score
Fitch B+ (Positive) B+ (Positive) Developed economies (average) 74.5
Moody's B2 (Stable) B2 (Stable) Emerging economies (average) 37.3
S&P BB- (Stable) BB- (Stable) Vietnam 31.0
Emerging Asia 34.7
Source: Transparency International
Structural economic indicators Scoring system 100 = highly clean, 0 = highly corrupt
1990 1995 2000 2011*
Current account (US$ million) - - 1106 236
Trade balance (US$ million) - - 375 -450
FDI (US$ million) - - 1298 6480
Debt service (US$ million) 174 364 1310 4123
Debt service (% of exports) - - 7.5 3.8
External debt (% of GDP) 359.7 122.6 38.2 39.2
Oil production (000 bpd) 50 173 316 309
Oil consumption (000 bpd) 53 94 176 365
Source : Oxford Economics / World Bank / EIA
Destination of goods' exports (2012)
United States 17.5%
European Union (27) 17.1%
China 12.0%
Japan 11.4%
Korea, Republic of 5.0%
Source : WTO Source : WTO
Agricultural
products
20.2%
Fuels and
mining
products
10.1%
Manuf actures
62.0%
Other goods
exports
0.1%
Transportation
1.7%
Travel
5.5%
Other
commercial
services
0.5%
Composition of goods & services exports,
2012
Vietnam
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