Michael Kokalari, Director of Macroeconomic Analysis and Market Research at VinaCapital, noted that Vietnam is one of the three countries in the world with the closest economic ties to the US. Strong US consumption is driving the recovery of Vietnam’s exports, manufacturing, and GDP growth.
According to Mr. Kokalari, this close link answers many questions that VinaCapital has recently received on this topic, especially as the US presidential election draws near and the US economy slows down, possibly leading the Fed to cut interest rates in September.
In short, the result of the US presidential election will not significantly impact Vietnam, regardless of which party wins in November, as the policies of the Democratic and Republican parties have more similarities than differences.
Regarding the slowing US economy, US consumption has continued to recover well this year, despite the Fed’s record interest rate hikes, due to the “K-shaped” economic dynamics in the US. This recovery disproportionately benefits Vietnam because, according to OECD analysis of “input-output linkages between countries,” US economic developments affect Vietnam more than any other country in the world, except for Canada and Mexico.
Strong demand for “Made in Vietnam” products from US consumers has boosted Vietnam’s export recovery to the US, from a 21% decline in the first seven months of 2023 to a 24% increase in the same period this year, driving manufacturing up by 10%.
Manufacturing accounts for a quarter of Vietnam’s economy, so the recovery in manufacturing is likely to lift Vietnam’s GDP growth from 5.1% in 2023 to 6.5% this year.
Vietnam is ramping up infrastructure investment.
According to VinaCapital, the Vietnamese economy is being supported by the “K-shaped” economic dynamics in the US this year. While the Fed has raised interest rates in the US to curb inflation, instead of cooling the US economy, higher interest rates have stimulated increased spending from wealthy US consumers, represented by the upper part of the “K” in the “K-shaped” economy. These consumers are now earning higher investment incomes from their savings and are spending this “surprise income” on various products, including those “Made in Vietnam.”
“We believe that US consumer demand for ‘Made in Vietnam’ products will slow down but not decline sharply in early 2025. We are optimistic that the recovery in Vietnam’s real estate sector and infrastructure investment will help boost GDP growth,” said Michael Kokalari.
Additionally, Vietnam recently raised its GDP growth target for this year from 6.5% to 7%, demonstrating the government’s determination to maintain strong economic growth. The two main levers that the government can use to accelerate GDP growth in the short term are increasing the number of approvals for new real estate projects in Vietnam and ramping up infrastructure investment.
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