Vietnam will likely obtain higher gross domestic product (GDP) growth in 2014 based on strong exports and low inflation so far this year, according to Hong Kong and Shanghai Banking Corporation (HSBC).
Vietnam's export performance has been enviable as the sector has expanded by 14.1 percent since early this year, an impressive result amid lackluster demand across the globe, local Saigon Times daily quoted sources from the bank's Global Research Report as saying on Tuesday.
The HSBC Manufacturing Purchasing Managers' Index (PMI) mirrored this trend as the index has risen for 12 consecutive months. In the third quarter, the manufacturing sector grew 9.8 percent year-on-year and contributed 1.9 percentage points to the economy's 6.4 percent year-on-year growth.
In recent years, domestic firms' trade deficits have narrowed while foreign enterprises' trade surpluses have picked up, backing stability for the currency and the economy. The growth of the sector has helped offset slowing investments and increase labor demand, the bank said.
According to the UN projections, 93 million people live in Vietnam in 2014 with around 60 percent in the labor force. Both total population and working age group are expected to continue to expand by about 1 percent per year, resulting in more investments and jobs to productively absorb existing and incoming labor.
In the medium term, labor market, financial, infrastructure and supporting industry reforms are required for growth to be sustainable. Low linkages with foreign enterprises and persistent skilled labor shortages are limiting the benefits of foreign direct investment (FDI), especially regarding the acquisition of technology.
Meanwhile, an EU-Vietnam Free Trade Agreement (FTA) is expected to conclude by the year-end, if not in early 2015, bolstering stronger growth of manufacturing exports. As of September, Vietnam 's footwear exports had jumped 24.6 percent while textiles and garments rose by 18.6 percent, said the Saigon Times.
HSBC said the expiration of EU anti-dumping measures on Vietnamese leather footwear, labor cost competitiveness with China and anticipation of the Trans-Pacific Partnership have encouraged firms to shift production to Vietnam.
However, the bank said the big winners of exports have been goods manufactured in Vietnam while commodity-based items have lost value in recent years.
Headline inflation slowed to 3.6 percent year-on-year in September despite higher education costs, and the consumer price index (CPI) is expected to trend sideways in the fourth quarter, ending the year at 3.7 percent year-on-year, according to the bank.