The Hanoitimes - Vietnam’s GDP is predicted to grow by 6.7% this year, with a modest deceleration over 2020−21 to 6.1% per annum.
Foreign direct investment (FDI) and the manufacturing sector continue to remain Vietnam’s significant drivers of growth in a time where global export and growth prospects deteriorate, according to the Institute of Chartered Accountants in England and Wales (ICAEW).
According to the Foreign Investment Agency under the Ministry of Planning and Investment, disbursed FDI picked up 9.8% year-on-year to a three-year high of US$2.6 billion in the first two months of 2019, with the manufacturing and processing sector garnering the most interest from foreign investors.
Moreover, the capital inflows are expected to remain strong over the medium term due to the country’s close proximity to China and positive labor dynamics, including low relative wages.
Vietnam’s participation in trade agreements, notably as part of ASEAN, and policies to attract FDI are also favorable, while its infrastructure metrics are also improving.
But structural reforms are needed to improve firms’ ability to do business in the country as well as ensure adequate education and training to enhance the scalability of production, notably in telecommunications, which is one industry where Vietnam has a comparative advantage, stated ICAEW.
ICAEW forecast Vietnam’s GDP to grow by 6.7% this year, with a modest deceleration over 2020−21 to 6.1% per annum.
Vietnam’s economic momentum moderated to 6.8% year-on-year in the first quarter of 2019, below the 7.3% increase in last year’s fourth quarter. Growth in the quarter was underpinned by ongoing strength in the manufacturing sector, solid service sector activity and improving agriculture output.
Highly exposed to China
Amid slowing global trade and escalating US-China trade tensions, ICAEW expected GDP in the Southeast Asia region to slow from 5.3% in 2018 to 4.8% this year, before moderating to 4.7% in 2020.
The deterioration in export momentum across the region has continued into the second quarter, with only Vietnam bucking the trend. While the rest of the region’s economies have recorded sharp falls in exports, Vietnam’s merchandise exports in US$ terms were 10.4% higher than a year ago in April.
However, this still marks a deceleration from the 13.3% growth recorded in 2018. Moreover, it is expected momentum to continue to trend lower given weaker Chinese import demand and increased trade protectionism. The recent re-escalation in US-China trade tensions will add further downward pressure on external demand.
Indeed, while trade diversion may temporarily benefit Vietnam, it is still highly exposed to China. Total exports to China in value added terms accounted for 10.3% of GDP in 2017, of which around 85% was used to meet Chinese domestic demand.
Sian Fenner, ICAEW’s economic advisor and Oxford Economics’ lead Asia economist, said exports and overall economic growth to continue to come under further pressure, as the re-escalation of trade tensions between the US and China is unlikely to ease any time soon.