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Economy

Vietnam on track to overtake Singapore in decade: DBS

Region's 'rising star' to benefit from US-China trade war, bank says

Laborers work at the construction site of an apartment building in Hanoi.   © Reuters

NEW YORK -- Vietnam's economy could grow as much as 6.5% a year over the next ten years and exceed Singapore in size by 2029, according to DBS Bank.

Fundamentals including improvements in productivity and infrastructure, against the larger backdrop of the Sino-American trade war, have made Vietnam a top destination for foreign direct investment, a trend that will continue, DBS senior economist Irvin Seah said in a research note on May 28. The bank is under DBS Group Holdings.

The Vietnamese economy has the potential to keep growing at a rate between 6% and 6.5% in the medium term, according to the report, with 5.5% coming from productivity growth and another 1% in the near term from growth in the working-age population. It is about 69% the size of the Singaporean economy, Seah wrote.

"Simply put, the Vietnam economy will be bigger than the size of the Singapore economy" in a decade if the former sustains such growth and the latter continues to grow "at a matured pace of about 2.5%," he predicted.

Vietnam's real gross domestic product grew nearly 6.8% on the year in the first quarter of 2019, according to the government. Exports to the U.S. have also jumped as companies move production to the Southeast Asian nation to evade American tariffs on Chinese goods. The country has emerged as one of the top electronics manufacturers in the region.

The government is making a "deliberate effort to encourage investment and improve infrastructure," the report said. Vietnam's geographical position in the regional supply chain and its extensive network of free trade agreements put the country in a "favorable position to benefit from the ongoing trade disputes" between the U.S. and China, it said.

Data compiled by DBS shows that China's foreign direct investment in Vietnam was unusually strong in the first four months of 2019, outstripping all other countries to reach $1.3 billion and rising from around $200 million a year earlier.

"Indeed, one can reasonably assume that such phenomenon could accelerate in the coming quarters if the bilateral and trade relationship" between the U.S. and China continues to worsen, the report said.

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