Vietnam to see slower growth in 2019: forecasts
Vietnam’s economic growth is expected to slow down this year though it will remain a regional outperformer, according to leading global analysts.
Fitch Solutions, an arm of Fitch Ratings, said in a report released Wednesday it expects Vietnam’s GDP growth to slow to 6.5 percent in 2019 in line with a wider trend of slowing global growth, but added the country would remain one of the fastest growing economies in Southeast Asia.
The economy grew by 7.1 percent last year, the fastest rate of expansion in 11 years, according to official data. This was well above the 6.5-6.7 percent target set by the National Assembly.
"Its increasing openness and reliance on foreign investment suggests that it is unlikely to be spared from the global growth slowdown arising from rising trade protectionism and tighter financial conditions.
"Although we believe that Vietnam’s manufacturing sector and economy will continue to outperform the region over the coming quarters, growth is likely to face headwinds stemming from rising global trade disruptions and tightening financial conditions, which will negatively impact global economic growth and risk sentiment," Fitch Solutions stated.
The World Bank Group in its bi-annual report on Vietnam issued last month said the country’s GDP growth is likely to slow from 6.8 percent in 2018 to 6.6 percent this year as the global economy weakens.
Weaker global demand for exports and reduced investment and trade flows as the U.S. Federal Reserve raises interest rates are other risks for Vietnam’s economy, Sebastian Eckardt, the World Bank’s lead economist for Vietnam, said.
The Asian Development Bank (ADB) in a forecast released last month for the East Asia and Pacific region projected Vietnam’s growth at 6.8 percent for 2019, slightly lower than the 6.9 percent it expected for 2018. These rates are the second highest in the forecast behind only India’s.
Disbursed foreign direct investment (FDI) in Vietnam reached a record $19.1 billion in 2018, up 9.1 percent year-on-year. With exports rising by 13.8 percent to $244.72 billion and imports at $237.51 billion, the country achieved its highest ever trade surplus of $7.21 billion last year.
Fitch Solutions said in 2019 the manufacturing sector would remain a key economic growth driver and outperform the region.
Vietnam has grown to become a manufacturing powerhouse, particularly in electronics, due to its relatively cheap and large workforce, geographical advantages, attractive tax breaks, stable political environment, and open trade policies.
The opening up of the Vietnamese economy also came at an opportune time as China began to shift away from lower-end and export-oriented manufacturing to focus on the domestic economy.
Vietnam’s continued commitment to economic liberalisation will also attract foreign manufacturers seeking to leverage its preferential trade deals.
The country is a signatory to 10 bilateral and multilateral free trade agreements (FTAs), with six more trade pacts in the offing, including the highly touted Vietnam-EU FTA.
Fitch Solutions added that trade tensions between China and the US would continue to drive up costs for manufacturers operating in China, pushing companies to outsource to its neighbor Vietnam, which is more competitive in terms of wages.