17:29 | 26/09/2019 Trade
While Vietnam’s economic growth is expected to ease to 6.7% in 2019, it is set to outperform the rest of the region and remain the fastest growing economy in South-East Asia, according to ICAEW’s latest Economic Update: South-East Asia report.
Overall economic growth across the region in H1 2019 slowed to 4% on the year compared to 4.5% in H2 2018. This is the result of spillovers from the US-China trade war, slower Chinese domestic demand and a downturn in the global electronics cycle.
Indeed, only Vietnam and Malaysia have outperformed the region, reflecting a more modest deceleration in export growth and resilient domestic demand. Meanwhile, slower export momentum weighed heavily on the growth of trade dependent economies such as Singapore, Thailand and the Philippines.
Sian Fenner, ICAEW Economic Advisor and Oxford Economics Lead Asia Economist said, Amid ongoing global headwinds and uncertainty around the outcome of US-China trade talks, we expect to see a further deterioration in economic prospects across the region, particularly amongst more trade dependent economies. Overall, regional South-East Asia GDP growth is expected to moderate to 4.5% this year, and stabilise at the same rate in 2020.”
As the escalation in US-China trade tensions and slower Chinese domestic demand weigh on exports and growth across the region, Vietnam appears to be one of the few beneficiaries. Indeed, a 33% year-on-year increase in exports to the US in H1 2019, has helped to offset slower trade with China and other countries in the region, allowing Vietnam to outperform other economies in the region. Supported by solid exports and industrial production in export-oriented manufacturing and processing industries, the economy rose to 6.7% in Q2 2019, which is slightly lower than the 6.8% growth recorded in Q1 2019.
Potential tariffs from the US also present a key risk to Vietnam’s growth. On top of the higher duties on several steel and aluminium products already in place, three product groups: computers and parts, textiles, and fisheries, are at risk of higher tariffs, covering around US$18.4bn or nearly 39% of Vietnam’s exports to the US in 2018. It is estimated that if the Trump administration were to raise tariffs by 10% on US$18.4bn of Vietnam exports to the US, Vietnam’s GDP growth would slow to around 5.9% per annum in 2020−21.
“We expect the challenging external conditions to continue weighing heavily on the overall growth across South-East Asia economies, as well as on regional trade flows. Looking ahead, Vietnam’s growth will moderate to 6.3% in 2020 and then about 6% per annum in 2020-21. In addition, we are also cautious of potential tariffs placed on the country by the US and the impact of increased trade protectionism in general,” said Mark Billington, ICAEW Regional Director, Greater China and South-East Asia.