In the first scenario, Vietnam Institute for Economic and Policy Research (VEPR) projects that the GDP growth rate will be 6.56 per cent, roughly the target set by the National Assembly.
This scenario may well occur due to the less favorable world economic conditions, the institute stated in its Vietnam annual economic report 2019 entitled ‘On the doorstep to the digital economy’.
In particular, the ongoing trade tensions between the US and China put Vietnam under new pressures and puts the country at risk of a trade deficit exacerbated by the Chinese exports and increased competition in the domestic market as both the US and China can boost their exports to Vietnam.
In addition, other countries also want to seize opportunities from the US-China trade war to boost their exports to the US and China, so it is not easy for Vietnam to increase exports to both markets.
In the second scenario, meanwhile, the country's economy is forecast at 6.81 per cent, meeting the target of the National Assembly.
This promising scenario, as VEPR noted, is rather feasible, thanks to the economic growth momentum of 2018, coupled with the government efforts to improve competitiveness and productivity, evident in the high relative growth of major industries in the early months of 2019.
Furthermore, the state and the private sector are making every effort to promote international trade, as seen in the export growth rate of domestic enterprises which are higher than that of FDI enterprises in the first quarter of 2019.
“This is different from the trend of many years ago because FDI enterprises always achieved higher growth rates than those of domestic enterprises,” read the VEPR report.
Nevertheless, despite the rosy outlook, inflation of Vietnam is expected to become more difficult to control in 2019 and it is likely to reach 4-5 per cent.
In the first scenario, with economic activity slower than expected, inflation will reach 4.21 per cent and it is forecast to reach as high as 4.79 per cent, higher than the 4 per cent target of the National Assembly in the second scenario.
The possibility of the high inflation rate to occur in the second scenario is probable should there be a resonance from both rising internal and external inflationary pressures, VEPR stated.
Internal pressure, meanwhile, will arrive from the price adjustments for public services as well as the higher petroleum prices implemented at the beginning of 2019. By the end of April 2019, the consumer price index increased by 2.93 per cent (year-on-year) and the index tends to move on an upward trend.
For external pressure, world crude oil prices may continue to rise due to escalation of the Middle East tensions and cutting world crude oil supply.
In order to curb inflation regulating authorities will need to closely monitor prices in the second half of the year, the research institute suggests.
The central bank, likewise, should be cautious about regulating money supply, interest rates and credit in the coming months if it wants to maintain the inflation level within its target.
