Vietnam still 'an FDI darling': Singaporean bank

Vietnam’s 2023 growth is below-trend amid global external headwinds, but its position as a manufacturing FDI darling remains intact, DBS, Singapore’s leading consumer bank, said in a report released on July 3.

The report pointed out that economic growth in externally oriented Vietnam rebounded in the second quarter but stayed sluggish, given the challenging global economic environment.

In the second half of this year, Vietnamese exports will likely improve modestly as the global electronics cycle rebounds. Vietnam’s domestic services and foreign tourism will likely continue outperforming and stay supportive.

The economy will be held up by easier fiscal and monetary policies, the report said, noting that Vietnam’s construction growth picked up strongly in the second quarter, with momentum to be supported by increased implementation of government infrastructure projects. Improvements would be critical for Vietnam to stay competitive and continue attracting foreign investments over the long term.

Yet, tight monetary conditions in advanced economies will likely restrain a strong upturn in global external demand for Vietnamese products and overall growth prospects, it said.

“Despite the cyclical headwinds, FDI will remain a structural tailwind amid global supply chain diversification,” according to the report.

Vietnam’s export-oriented manufacturing growth decelerated sharply amid global external headwinds but bounced in the second quarter. Similar uptick was also seen in monthly goods exports figures. Electronics, the largest goods export product at nearly 30% of total, could turn positive by the second quarter.

“We expect Vietnam to remain a key beneficiary for re-location or co-location of production, supported by its already well-known and favourable factors,” the report said.

These include competitive costs for a relatively skilled workforce, extensive free trade agreements (FTA), its bright medium-term growth prospects of 6%-7%, and a growing electronics ecosystem.

Total newly registered FDI in Vietnam grew by around 30% year-on-year in the first half after performing poorly in 2022.

Crucially, new manufacturing FDI inflows picked up strongly in 2023, despite global economic headwinds, and after being resilient over the past couple of years (2020 to 2022) when the world suffered from the pandemic.

“This trend reflects foreign investors’ still-high confidence in Vietnam’s long-term potential. Its position as an FDI darling will likely to stay intact for some time,” the report said.