In “Managing headwinds” report released recently, World Bank stated that Vietnam’s economy continues to show fundamental strength, supported by robust domestic demand and export-oriented manufacturing.
On the upside, Vietnam is strongly positioned to benefit from numerous free trade agreements that are coming into force now and over the forecast period.
The baseline outlook is positive on balance. Economic growth of Vietnam is projected to moderate to 6.6 percent in 2019, driven by credit tightening, slower private consumption and weaker external demand.
Inflationary pressures are projected to remain moderate, due to subdued global demand conditions and moderate global energy and food prices.
Over medium term, growth is projected to stay around 6.5 percent, as the impact of current cyclical uptick dissipates. Poverty is expected to decline further, as labor market conditions remain favorable.
GDP growth of Vietnam accelerated to 7.1 per cent in 2018, underpinned by a broad-based pickup in economic activity. Strong economic activity has supported continued employment creation and poverty reduction.
In 2018, the headline CPI remained moderate at 3.5 per cent, well below the State Bank of Vietnam’s inflation target of 4 per cent.
Vietnam’s external balances continued to improve in 2018 despite uncertain global trade developments. Vietnam’s merchandise exports are estimated to have expanded by 13.2 per cent in 2018 - below the 21.8 per cent recorded in 2017, but significantly outperforming global trade growth.
World Bank said that strong exports also helped Vietnam to sustain a current account surplus for an eighth consecutive year. Vietnam’s capital account surplus also remains sizeable owing to sustained high FDI inflows.
Despite improved short-term prospects, there are significant downside risks.
Domestically, a slowdown in the restructuring of state-owned enterprises and banking sector could adversely impact the macro-financial situation, undermine growth prospects, and create public sector liabilities.
A continued slowdown of public investment could undermine long-term development objectives, and further fiscal consolidation should focus on containing recurrent spending while stabilizing revenue performance.
Vietnam’s economy also remains susceptible to further volatile developments in the global economy, given its high trade openness and relatively limited fiscal and monetary policy buffers.
Weaker external demand and heightened global financial volatility call for a continued focus on sound macroeconomic management to safeguard against possible shocks.
Growth is also spatially uneven, which may see regional disparities continue to widen.