Illustrative image (Source: VNA) Hanoi (VNA) - Vietnam’s grossdomestic product (GDP) is expected to grow 6.6 percent in 2018, down slightlyfrom 6.8 percent last year.
The forecast was made by the Institute ofChartered Accountants in England and Wales (ICAEW), who organised a seminar oneconomic insight for Southeast Asia in Hanoi on June 5.
Growth in the region is forecast to come inat 4.9 percent from 5.3 percent last year, as a result of moderate exportgrowth across the region from the sharp acceleration last year.
Unlike the US and Europe, Asia had apromising start this year, with Southeast Asia economies expanding 5.2 percentyear-on-year, slightly softer than the 5.3 percent in the previous quarter.
In Vietnam, economic growth eased back inthe first quarter, to 7.4 percent year-on-year, following a stellar end to lastyear.
However, the quarterly result was still thestrongest Q1 outcome in a decade driven by ongoing strength in themanufacturing sector, solid service sector activity and improving agricultureoutput.
Mark Billington, ICAEW regional directorfor Southeast Asian, said: “Although for Vietnam external demand is expected tomoderate, domestic demand is forecast to strengthen in 2018, driven by solidforeign direct investment inflows, buoyant consumer spending and expansionarymonetary policy conditions.”
“In 2019-20, we expect growth to ease backslightly to around 6.3 percent from our forecast of 6.6 percent this year amida less expansionary monetary policy and a maturing of the global trade cycle,”he added.
Monetary conditions will also remainsupportive of domestic demand.
In July last year, the central bank loweredits rediscount and refinancing rate to 4.25 percent and 6.25 percentrespectively.
The increase in private credit will alsoencourage household spending.
The State Bank of Vietnam aims to achievecredit growth of 17 percent this year after bank lending increased by 18.2 percentlast year.
However, this rapid expansion of lendingdoes raise risks to financial stability and inflation.
Indeed, while headline inflation has so farbeen below the government’s 4 percent target this year, inflation is expectedto rise to an average of 3.9 percent this year as food prices exert less of adrag.
But there is a risk that price pressurespick up more significantly. In this event policy makers will either need toaccept lower growth rates or take a chance on inflation.
Separately, rising US-China trade frictionshave increased the risks of a “bad case” trade war scenario.
As a small open economy heavily dependenton external trade, an increase in protectionism and slower global trade wouldhave significant knock-on effects for Vietnam, even if it is not the directtarget of increased tariffs. Its dependence on foreign investor flows also makeit vulnerable to changing global sentiment, attendees heard at the seminar.
Nonetheless, it is more likely that tariffimposition will be contained and greater intra-regional trade and the increasein domestic demand’s contribution to GDP will likely protect Asia’s growth tosome extent.
Commenting generally on the region, SianFenner, ICAEW Economic Advisor and Oxford Economics Lead Asia Economist, said:“Manufacturing Purchasing Managers Index (PMI) and recent trade data all pointto a more moderate growth in the region going forward. This is consistent withour view that export growth across the region will ease from 2017’sperformance, reflecting softer Chinese import demand and normalisation in theglobal electronics cycle”.
ICAEW forecast moderate easing in SoutheastAsia’s GDP growth to 4.9 percent in 2018. The slowdown is expected to bebroad-based, with only Indonesia growing faster than 2017, she said.-VNA
VNA
