Analysts from the bank have indicated that Vietnam’s GDP growth will be better in 2017, predicting a 6.6 per cent figure. “We expect Vietnam to grow at a steady pace of 6.0 per cent in 2016 despite a slow start to the year,” said Mr. Chidu Narayanan, Economist for Asia at SCB. “We forecast GDP growth of 6.6 per cent in 2017.”

Agriculture accounting for 12.5 per cent of Vietnam’s GDP was a factor in the revised forecast, as it cut 0.78 per cent from first half growth after growing 1.90 per cent in the first half of 2015. “Agriculture was hit by the worst drought in 90 years, which affected output,” bank analysts wrote in the report. “We expect this to weigh on full-year GDP growth.”

First half GDP growth was lower than expected, at 5.52 per cent year-on-year and much lower than the 6.28 per cent year-on-year recorded in the first half of 2015.

Moreover, net exports will be weaker in the second half of the year. “The trade balance registered a mild surplus in the first half, driven by still-strong electronics exports and slower import growth,” analysts wrote.

In the second half there will be lower demand in the West while capital-goods imports should remain steady on still-strong FDI implementation, resulting in a trade deficit.

SCB remains optimistic about Vietnam in regard to manufacturing, construction and consumption. “Manufacturing and construction are likely to remain the key growth drivers,” the report stated. In particular, manufacturing accounted for 17 per cent of GDP in the first half, up 10.1 per cent year-on-year, and has continued to grow strongly since the third quarter of 2014. Construction grew 8.8 per cent year-on-year in the first half. SCB therefore expects the two sectors to continue to record strong growth in the second half.

Consumption may remain the biggest growth driver in the second half. The bank forecast that investment will contribute more to growth this year than in 2015, as implemented FDI is already stronger than in the same period last year. It therefore expects FDI, particularly into the manufacturing sector, to remain strong in the second half. “65 per cent of FDI inflows so far this year have been to the manufacturing sector, which has received over 50 per cent of all annual FDI since 2012,” its report noted.

As manufacturing in China becomes more expensive Vietnam will be a preferred destination for manufacturing corporates in the Pearl River Delta region of South China who are looking to move their operations out of the country, the report added.

FDI inflows and healthy trade have supported Vietnam’s currency, helping it to shake off broader market volatility. “The VND has continued to demonstrate extraordinary resilience, despite broader market volatility post-Brexit,” SCB wrote. “The USD-VND fixing has been very steady, not exceeding 21,900 since early June, while USD-VND spot has been steady at around 22,300.”