Lower-than-expected economic growth witnessed in the first quarter of 2019 could linger to the end of 2019, according to SSI Securities Corporation, Vietnam’s largest brokerage house.
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SSI attributed the low growth rate in the first quarter to China’s slowdown in import growth and Samsung cutting smart phone production.
A decrease in Chinese’s imports was partly due to the ongoing US – China trade friction, in turn directly impacting Vietnam’s agricultural exports and tourism. Meanwhile, Samsung’s decision may come from changes in its production strategy and the world’s smartphone market becoming saturated.
Looking at the upcoming quarters, SSI predicted modest growth of agriculture and tourism a likely scenario due to difficulties in searching for Chinese market’s replacement. Moreover, phones could be one of the reasons holding back growth unless there are breakthroughs in products or new projects coming in.
According to the SSI, driving forces for growth would come from automobile industry, textile & garment, footwear and furniture.
With such high level of openness, the slowdown of Vietnam’s economy due to its high exposure to unfavorable global economic condition does not come as surprise, stated SSI.
Opportunity for reform
To solve this problem, SSI recommended turning to internal strengths, while grasping a handful of opportunities for new export market expansion.
Specifically, the key for greater internal strength would be the efficient management of the monetary and fiscal policies, which are normally considered reason for economic uncertainties over the last ten years.
SSI expected a consistency over the monetary policy, coupled with modest growth rate of credit at 12 – 14% for smooth liquidity and low interest rate.
Meanwhile, the government should place a strong focus on investment for development, aiming to stimulate the economy in short-term and laying the foundation for growth in the future.
SSI maintained the private sector and consumption demand pivotal for economic growth and part of the country’s internal strengths. To spur the growth of the private sector, it is advisable for the government to support a group of 30 largest enterprises reaching regional level by 2030.
With a large market of 94 million people, SSI said Vietnam should have certain advantages in trade negotiations, especially with the growing trend of protectionism alongside free trade movements.
Under this context, Vietnam should revise all free trade agreements that the country is a part of to maximize benefits from trade.
SSI also stated Vietnam must grasp opportunities from FDI manufacturers relocating productions facilities from China to Vietnam. To attract large scale FDI projects, the brokers said a similar approach to Samsung is needed for Vietnam to become a production hub of multinationals, creating a positive spillover effect to the economy.
SSI concluded slower economic growth in the first quarter could present opportunities for Vietnam to reform and look back its growth policies. With this regard, the year of 2019 could be seen as a stepping stone for Vietnam’s economy to accelerate in subsequent years.
