According to three reports released recently by the World Bank (WB), ANZ, and HSBC, Vietnam's economy is improving faster than previously predicted. Both WB and HSBC said the result is indicated by improving GDP, and effective policies to control inflation and budget finances. HSBC's report was its Vietnam November Purchasing Manager Index (PMI), which showed that the economic health of the country's manufacturing sector was in better shape.

Positive sights

The WB predicts Vietnam's economic growth will stand at 5.6 per cent at the end of the year, higher than the 5.4 per cent recorded in 2013, contributed in no small part by a GDP increase of 6.2 per cent (year-on-year) in the third quarter. There were some significant changes in non-service sectors, which were greater than in 2013, and lower domestic demand, according its Taking Stock report, released on December 3.

ANZ also put growth for 2014 at 5.6 per cent and forecasted 5.8 per cent for next year, with foreign investment playing a significant role. Mr. Warren Hogan, ANZ's economic development specialist, said: "Economic growth resulted from improvements in controlling inflation, financing the government budget, more FDI going to high-value added sectors, and higher export turnover." The bank also suggested stable interest rates would contribute to economic growth.

Vietnam's PMI rose from 51 points in October to 52.1 points in November, with a significant improvement in most of the sub-indices of the business environment. The Index has been improving since January 2013.

Manufacturing Sector

ANZ's report stated that Vietnam had 1,306 newly-approved FDI projects this year as at October 20, with total new commitments of $9.95 billion. There were 469 existing projects that increased their capital, totaling $3.75 billion, for total FDI since January of $13.7 billion. The manufacturing sector, as at June, had attracted nearly $10 billion in new FDI projects, accounting for 70 per cent of new and additional FDI, primarily from South Korea, Singapore and Hong Kong. In particular, FDI in the manufacturing of semiconductor devices will be a key driver in the export-oriented sector.

Ms. Trinh Nguyen, HSBC economist, said that November's PMI was due to competitive advantages in the manufacturing sector, where lower labor costs than China led to the sector expecting a larger market share.

Trade balance

The WB report shows that Vietnam's trade balance continues to improve, with contributions to GDP rising over the last three consecutive years.

Vietnam has recorded a trade surplus since the beginning of the year of $1.866 billion, significantly higher than last year's $9.4 million.

Experts from ANZ believe that Vietnam will record a trade surplus for this year due to State budget disbursement being slower than expected, which will reduce expectations over import growth.