09:14 | 31/10/2018 Economy- Society
(VEN) - The Asian Development Bank (ADB) has revised down its economic growth forecast for Vietnam in 2018 to 6.9 percent from a previous estimate of 7.1 percent.
Economic growth forecast of 6.9 percent
According to the Asian Development Outlook 2018 Update, the Vietnamese economy continued to perform strongly in the first half of 2018.
“The economic performance was broad-based, driven by vigorous manufacturing expansion, bumper agriculture production, robust performance of services sector, resilient domestic consumption, and strong investment fueled by foreign direct investment (FDI) and domestic enterprises,” said Eric Sidgwick, ADB Country Director for Vietnam.
He added that Vietnam’s economic growth is likely to grow well in the short term due to resilient domestic demand, improved business conditions, and a stable macroeconomic environment. An increase in public capital expenditure in the second half of the year is expected to boost growth in investment.
However, the Vietnamese economy remains vulnerable to external and domestic challenges. For example, growth in the European Union, Japan and China is slowing down and could dent export opportunities for Vietnam. In addition, the escalating trade war between China and the United States could threaten to disrupt global value chains and the production network in which Vietnam is deeply and widely integrated.
Growth in exports is likely to moderate in the near term, although Vietnam’s participation in various free trade agreements should support continued access to foreign markets for major exports.
The agricultural sector might reach growth of 2.5 percent this year, lower than the previous forecast and the government target of three percent due to severe floods in recent months. In addition, unfavorable weather could also undermine mining production.
Construction would also face growth reduction in the last months of the year, as the government seeks ways to curb the real estate bubble.
These factors have led ADB experts to lower their forecast for Vietnam this year, while maintaining its 2019 forecast at 6.8 percent.
Nguyen Minh Cuong, principal ADB country economist for Vietnam, said the Vietnamese economy faces three challenges, including the escalating US-China trade war, inflationary pressure, and exchange rates.
He said the Vietnamese dong has exhibited more weakness since July and could come under continued pressure as US interest rates rise and the dollar strengthens. Depreciation of the renminbi against the dollar, if it continues, could further put pressure on the Vietnamese dong, adding to inflation. Moreover, the rise in international oil prices will raise the pressure on inflation, as would an upsurge in food prices. Food prices, with a weight of around one third in the consumer price index, have already risen by 2.3 percent in the first eight months, reversing a declining trend in the same period last year.
“Average annual inflation is forecast to grow to four percent in 2018 and 4.5 percent in 2019, and both projections are higher than the previous forecasts,” Cuong said.
Continued trade tensions between the US and the China could have spillover impacts on Vietnam’s external trade and FDI, he added.
“If trade tensions continue, China and the US will seek other markets. The US can apply protectionist measures to Vietnamese goods if there are signs of exporting goods from China to the US by way of Vietnam. In the long run, narrowing global trade is clearly visible and will make competition among countries tenser”, Cuong said.
Pressure on exchange rates is also a challenge for the Vietnamese economy. Vietnam is prudent in implementing fiscal and monetary policies to maintain stability while supporting growth. Although the State Bank of Vietnam has kept interest rates unchanged, other measures have been taken to stabilize exchange rates.
According to Cuong, based on recent measures and future orientation, Vietnam should consider tightening monetary policy in the short term to curb inflation.
In addition to accelerating administrative reforms, Vietnam should continue to improve its business environment,
infrastructure and market diversification in order to maintain high and sustainable growth and attract more FDI.