Vietnam’s economic growth to out-tiger China by 2018

For the past 30 years, China has been the world’s fastest growing major economy, emerging as the star of Asia.

However, last year China’s economy grew by 6.7 percent compared with 6.9 percent in 2015, according to official data, marking its slowest growth since 1990.

UBS predicts Vietnam’s economic growth will expand by 6.5 percent in 2017, slightly lower than the 6.7 percent target set by the government, but still above 6 percent for the fourth consecutive year, defying the Asian slowdown.

Vietnam’s economy expanded by 5.73 percent on-year in the first half of 2017, official data showed, mainly fueled by foreign direct investment (FDI), according to the UBS report.

Vietnam’s FDI disbursement has grown at a compound annual rate of over 10 percent in the last five years, and actual disbursement reached a record $15.8 billion last year.

During the first half of 2017, the country also welcomed over $19 billion in investment pledges, leaping 55 percent from a year earlier, mostly from North Asia’s technology powerhouses.

The increased FDI flowing into Vietnam has resulted in a hike to the average income. The average monthly salary witnessed an increase of 88 percent from 2010-2015, according to UBS.

By the end of this decade, Vietnamese urbanites are expected to earn an average $714 per month. Vietnam’s emerging consumer class, according to the report, will pave the way for investment growth in the country’s promising retail sector, especially with investment from overseas.

However, UBS warned of the risk of trade protectionism following U.S. President Trump’s decision to ditch the Trans-Pacific Partnership this year.

“Vietnam remains largely dependent on foreign capital and foreign technology. An FDI-led economic model is vulnerable and instable,” said Professor Pietro Masina of the University of Naples, who has spent years studying Vietnam’s economy.