Vietnam's Fast Economic Growth Is Quietly Slipping, But No One Cares (Source: Forbes)

In central Ho Chi Minh City, financial hub of the fast-growing Vietnamese economy, 20-somethings with designer hairdos jump out of polished black sedans to pack the coffeehouses on every block and fill restaurants serving sushi and chicken in passion fruit sauce. Ho Chi Minh City still lacks the traffic gridlock of Asian peers such as Bangkok and Jakarta, but you’re starting to wait an extra turn at traffic lights during peak hours. One peak came on a Sunday night in August just because, as a resident friend said, it was a weekend and the weather was nice. The middle class is growing faster than anywhere in Asia, quickly transforming a still fundamentally poor country.

It’s odd then that headline economic data points toward a slowing of Vietnam’s economic growth, an increasingly obvious indicator in Asia as China’s GDP expansion has eased since 2011. The government in Hanoi has targeted 6.7% growth this year, compared to 2015, but the Ministry of Planning and Investment says that could come in at 6.27% after a first half around 5.5%.
That slip reflects what Vietnam-based SSI Research calls a “sluggish” mining sector, which covers Vietnam’s offshore fossil fuel exploration. Government planners are now eyeing a boost in exploration for crude oil and natural gas, volumes of which fell in the first seven months of the year due to falling crude oil prices. Mining overall lost 2.2% in the first half of 2016.

A change in leadership in early 2016 further eased economic activity, while an early year drought and a dead fish pileup on the central coast due to pollution have also hit agriculture, which is 17% of the country’s $193.6 billion GDP. “It took a while figuring out who was going to be ruling the party in power and who were going to be the ones directing the various departments in the government ,” recalls Oscar Mussons, international business advisory associate with the Dezan Shira & Associates consultancy in Ho Chi Minh City.
It’s too early to say whether Vietnam can reach even 6.27% growth this year, SSI Research says.
The Southeast Asian country of 91.7 million people has built economic growth, which reached a seven-year high of 6.7% in 2015, mainly on opening gates to export manufacturing. Factories invested by tech high-giants such as Hon Hai Precision, Intel and Samsung have joined more traditional plants that pump out fabrics, furniture and auto parts. Those factories are hardly going away. Now Vietnamese companies linked to exports are expanding, hiring more people, raising wages and fostering an urban middle class that values conspicuous consumption, which explains why you want to be seen eating sushi or driving the polished black car. Vietnam’s real estate bubble of four years ago is also under control and the currency has stabilized since then.

“We almost don’t talk about the economy anymore,” says Bill Stoops, chief investment officer with Dragon Capital, a Ho Chi Minh City-based asset management firm with 90 percent of its assets in local equities. “It’s understood by everyone that we’re on a really sound and sustainable footing now.” Losses in mining and farming “have dragged on GDP growth this year,” he notes. But manufacturing, especially for foreign-invested exports, dwarfs their contribution to the overall economy. Exports and the domestic economy are intact, Stoops says.