Tiếng Việt
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The global lender said in its latest East Asia and Pacific Economic Update, called “Managing Headwinds,” that Vietnam’s economy will continue to show solid strength, supported by robust domestic demand and export-oriented manufacturing. Following 6.8% growth in 2017, preliminary data indicates that GDP growth accelerated to 7.1% in 2018, underpinned by a broad-based pickup in economic activity.
Growth in the agriculture, forestry and fishery sectors accelerated to 3.5% from 2.8% in 2017. The industrial and construction sectors expanded by 8.5%, driven by robust growth of 13% in manufacturing, which benefitted from healthy external demand. The services sector posted 7.2% growth, supported by sustained strength in domestic consumption and tourism.
Strong economic activity has supported continued employment creation and poverty reduction. Unemployment in 2018 was unchanged from 2017, at 2.2%, and underemployment declined to 1.5% over the same period from 1.7% in 2017. Estimates of poverty based on the international lower middle-income poverty line are projected to have declined from 8.4% in 2016 to 5.9% in 2018.
After accelerating in the first three quarters of 2018, reflecting hikes in administered prices, the consumer price index (CPI) moderated significantly in the last quarter of 2018, due to softer food and fuel prices. For the year as a whole, the headline CPI remained moderate at 3.5%, well below the target of 4%.
Vietnam’s monetary policy continues to balance its dual objectives of maintaining stability and supporting economic growth. While the monetary policy stance remains broadly accommodative, the State Bank of Vietnam (SBV) introduced some tightening of credit in 2018 by setting credit growth limits for commercial banks and controlling lending to high-risk sectors, such as real estate, securities and the consumer market.
Liquidity in the banking sector also tightened markedly, due to slower deposit growth pushing up short-term interbank interest rates. Amid tighter financing conditions, credit growth moderated to about 14% year-on-year in 2018 from 18% in 2017.
Nevertheless, corporate and household balance sheets are increasingly leveraged with Vietnam’s credit-to-GDP ratio at roughly 135%. This leaves the economy vulnerable to shocks and potential financial market stress, especially given legacy non-performing loans and relatively thin capital buffers in some banks.
Vietnam’s external balances continued to improve in 2018, despite uncertain global trade developments. Vietnam’s merchandise exports are estimated to have picked up by 13.2% in 2018, below the 21.8% recorded in 2017, but significantly outperforming global trade growth.
Merchandise import growth posted a stronger deceleration to 11.1% in 2018, compared with 21.9% in 2018, reflecting a slowdown in imports of investment and intermediate goods.
Vibrant trade activity has positioned Vietnam as one of the most open economies in the world, with its trade-to-GDP ratio reaching nearly 200% for the year. Strong exports also helped Vietnam sustain a current account surplus for its eighth consecutive year.
Vietnam’s capital account surplus also remains sizeable owing to sustained high foreign direct investment inflows. Robust external positions eased foreign exchange pressures and helped the SBV build up international reserves, which increased from the equivalent of 2.1 months of import cover in end-2015 to some 2.8 months in end-2018.
Bolstered by strong external positions, the exchange rate has been relatively stable since mid-2018. However, there remain concerns over the real appreciation of the Vietnamese dong and its possible negative effects on Vietnam’s export competitiveness.
According to the report, the Government’s commitment to strengthening budgetary discipline needs to be balanced with reforms that create fiscal space to maintain critical investments in infrastructure and spending on essential public services.
Outlook, risks and challenges
The baseline outlook is positive on balance. Inflationary pressures are projected to remain moderate due to subdued global demand and moderate global energy and food prices.
Over the medium term, growth is projected to stay at around 6.5% as the impact of the current cyclical uptick dissipates. Poverty is expected to decline further, as labor market conditions remain favorable.
Despite improved short-term prospects, there are significant downside risks. Domestically, a slowdown in the restructuring of State-owned enterprises and the banking sector could adversely impact the macro financial situation, undermine growth prospects and create public sector liabilities.
A continued slowdown in 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, so regional disparities may continue to widen.