Vietnam to be the fastest growing economy in Southeast Asia: report

Friday, 2019-06-07 17:26:41
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The seminar to announce the ICAEW report in Ho Chi Minh City on June 6. (Photo: NDO/Dang Quan)
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NDO – Vietnam's economic growth is forecast to decline to 6.7% in 2019, but it is still enough to make Vietnam the fastest growing economy in Southeast Asia, according to a recent report announced by the Institute of Chartered Accountants in England and Wales (ICAEW).

According to the ICAEW Economic Update: South East Asia, a quarterly forecast for the region prepared directly for the finance profession, GDP growth for the Southeast Asian region slowed to 4.6% year-on-year in Q1, down from 5.3% growth recorded in the first half of 2018.

It is a result of the re-escalation in trade tensions coming at a time when export growth across the region is already in the doldrums from weaker Chinese import demands, a slowdown in the global ICT cycle, and the increase in trade protectionism over the past year.

The deterioration in export momentum across the region has continued into the second quarter, with only Vietnam bucking the trend, although the increase has decreased compared to last year. While exports in the remaining Southeast Asian economies have recorded a sharp decline, Vietnam's export of goods in USD was 10% higher than in April last year. However, this still marked a decline compared to the previous increase of more than 13% recorded in 2018.

Associate Professor, Dr. Dang Van Thanh, Chairman of the Vietnam Association of Accountants and Auditors, said that Vietnam is reaching a growth rate of about 6% and the figure is expected to reach 6.7% this year. The number of registered enterprises increased significantly, while the number of dissolved enterprises decreased. Budget collection and expenditure still reached the desired target.

Sian Fenner, Economic Advisor to ICAEW, Chief Economist of Oxford Asia, predicted that the regional exports and economic growth in general will continue to be under further pressure. With the volume of exports falling since the beginning of the year, any increase in trade tension between the two largest economies in the world could pull back the growth of the region in general.

In the next five years, the investment in infrastructure is about 7.3% of the total GDP. The main investment source depends on FDI. Along with that, the private sector will get more involved in infrastructure and will change the overall picture of infrastructure. There is also a positive impact of the investment flows into increased imports, exports, transportation and tourism, then resulting in the increase in number of tourists entering Vietnam, which in turn stimulates development of infrastructure, Sian Fenner predicted.

Vietnam’s economic momentum moderated to 6.8% year-on-year in the first quarter of 2019, below the 7.3% increase in Q4 GDP. Growth in the quarter was underpinned by ongoing strength in the manufacturing sector, solid service sector activity and improving agriculture output.

Despite increased exports, economic dynamics are expected to be lower due to reduced Chinese import demands and increased trade protectionism. The recent re-escalation in US-China trade tensions will add further downward pressure on external demand. Indeed, while trade diversion may temporarily benefit Vietnam, it is still highly exposed to China. Total exports to China in value added terms accounted for 10.3% of GDP in 2017, of which around 85% were used to meet Chinese domestic demand.

However, external demand is unlikely to fall off a cliff as FDI and manufacturing production expected to remain significant drivers of growth. According to the Foreign Investment Agency, disbursed FDI picked up 9.8% year-on-year to a three-year high of US$2.6 billion in the first two months of 2019, with the manufacturing and processing sector garnering the most interest from foreign investors.

Inflows are expected to remain strong over the medium term due to the country’s close proximity to China and positive labour dynamics, including low relative wages. Its participation in trade agreements, notably as part of ASEAN, and policies to attract FDI are also favourable. Vietnam’s infrastructure metrics are also improving, the report stated.