Vietnam’s 2019 economy hinges upon bright and gloomy shades

Looking back on Vietnam's economic development in 2018, economist, Dr Vo Tri Thanh emphasised that the economy actually improved, following the growth trend showed clearly since 2017.

Vietnam has achieved record GDP growth of 7.08 per cent, a peak since 2011. Economist Thanh said that the first reason for this growth is the recovery since 2015 from the instability of Vietnam's macro-economy in 2007 – 2011.

The second reason comes from the manufacturing and processing industry, whose export was dominated by the foreign direct investment (FDI) sector. Recently, two large foreign enterprises, Samsung and Formosa, have had very good business performance.

According to Thanh, the dependence of Vietnam's economy on FDI enterprises was quite obvious. However, it was getting positive as the export growth rate of Vietnamese enterprises was higher than FDI ones this year, especially in the fields of agricultural produce and textiles - footwear.

The third reason came from the service industry. 2018 is the first year after many years that the service growth rate was lower than the GDP. That means services still contributed the most to Vietnam’s economic growth, but it did not contribute to the increase over the year anymore. Even the growth rate of tourism has slowed down in the last quarter of 2018, while the banking and financial sector are likely to decrease in profits in 2019.

Thus, looking at the overall picture of the economy, this expert stated that positive growth is apparent, but there are not many aspects to be optimistic about. The outlook of Vietnam's economic growth in 2019 will be a picture mixing the grey shade of things to look out and the pink shade of things to look forward to, Dr Vo Tri Thanh emphasised.

First of all, the first grey area may come from the global economy. All forecasts for world economic growth for the next two years that were made last December show that the world economy is tending to slow down, leading to a decline in trade growth.

Besides, the two biggest trading partners of Vietnam, the US and China, are forecasted to have a faster economic decline this year. Global economic trends are estimated to be increasingly uncertain and risky due to four factors, namely geopolitics, goods prices, oil prices and the US-China trade war. These trends will have a certain impact on Vietnam's economy in 2019.

The second grey area is the domestic economy. Behind Vietnam's growth story is the issue of growth quality. Regarding industries, Vietnam is well-known to be too dependent on the FDI sector. Besides, the transformation of the growth quality model and the business environment of Vietnam are also two issues that need tackling.

"Moreover, talking about Industry 4.0, the first thing to change is not industry but institutions and policies. Industry 4.0 must allow mistakes, but in Vietnam, is it possible to make mistakes in those fields?", Thanh questioned.

About the pink shade in the economic picture, according to this expert, it comes first from the Vietnamese, which was reflected in the good consumption index and retail sales increasing by 9 per cent. In fact, domestic tourists take a larger part in the tourism sector, which ranges from 65 to 70 million travellers.

Secondly, free trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) are helping Vietnam get access to and diversify markets to minimise risks in an erratic global economy.

Thirdly, it results from the efforts of the Government in improving the business investment environment and solving difficulties for business development. Fourthly, opportunities for Vietnam may come from the impacts of the US-China trade war.

If we could figure those shades out and balance them for economic development, the growth target set by the National Assembly in 2019 of from 6.6 to 6.8 per cent would be attainable in the current context, Thanh stated.

However, in a colourful global economic picture, there are always hidden opportunities for Vietnam, this economist asserted.

>> Vietnam being stopgap in US-China trade war?