The Hanoitimes - With a trade to GDP ratio of close 200% in 2018, Vietnam is exposed to heightened uncertainty and potential disruptions to global supply chains.
The World Bank (WB) has kept its growth projections for Vietnam unchanged for 2019-2020 as growth in developing East Asian and Pacific (EAP) economies is expected to slow and forecasts for a number of regional economies have been trimmed.
Vietnam’s medium-term outlook remains positive. Real GDP growth is projected to decelerate from 7.1% in 2018 to 6.6% in 2019, reflecting slower export growth and weaker agricultural production growth, according to Weathering Growing Risks, the October 2019 edition of the World Bank’s East Asia and Pacific Economic Update, released Thursday.
Source: WB's Weathering Growing Risks report
The country’s growth is expected to further moderate in 2020 and 2021 to a more sustainable pace of 6.5%, in line with potential output.
Over the forecast horizon, inflation is projected to stay below the government’s 4% target, and the current account is estimated to sustain a smaller surplus. The fiscal deficit is projected to decline through 2021, reflecting ongoing fiscal consolidation efforts.
The report points out that Vietnam remains susceptible to changing global economic conditions, given its high trade openness and relatively limited fiscal and monetary policy buffers.
“An escalation of trade tensions and a sharper than expected global downturn could weigh on Vietnam’s growth. On the domestic front, a slowdown in the restructuring of the state-owned enterprises and banking sectors could adversely impact the macro-financial situation and undermine long-term growth prospects,” it added.
While Vietnam’s trade performance remains relatively resilient, it has not been insulated from the escalating global trade tensions. During 1H-2019, exports are estimated to have slowed from 16.3% in 1H-2018 to 7.2% year-on-year in terms of value, the slowest pace since 1H-2016 (5.8%).
With a trade to GDP ratio of close 200% in 2018, Vietnam is exposed to heightened uncertainty and potential disruptions to global supply chains. Further, given the widening trade surplus with the US, Vietnam could also become a target for tariff and other trade-related protection measures from the US, the bank warned.
According to the report, growth in developing East Asian and Pacific economies is expected to slow from 6.3% in 2018 to 5.8% in 2019 and to 5.7 and 5.6% in 2020 and 2021, respectively, reflecting a broad-based decline in export growth and manufacturing activity.
Weakening global demand, including from China, and heightened uncertainty around ongoing US-China trade tensions has led to a decline in exports and investment growth, testing the resilience of the region.