Annual economic growth target in doubt

Vietnam’s export target for 2017 is predicted to be hard to achieve

The economic analysis and market research firm Market Intello recently issued an economic growth forecast for Vietnam, analyzing how domestic policy and, more importantly, events in Vietnam’s major export markets – the US, Europe and China – would affect its growth.

Given the economy’s dependence on exports, the impacts of Brexit on the Eurozone economy, Vietnam’s second largest export market, should start to manifest from March 2017 (when Britain activates Article 50). “Furthermore, the US new President’s unclear intention in trade policy could negatively affect developing economies, which are becoming increasingly dependent on globalization,” according to the analysts.

“The slowdown of foreign capital due to news about the US decision on the Trans-Pacific Partnership (TPP) should hamper the export growth since the FDI sector remains Vietnam’s main driver of exports,” they wrote.

China is predicted to face excessive public investment while its reserves are declining rapidly. It will be very difficult for China to find a solution to improve the economy following successful efforts to curb its strong decline. Meanwhile, the Shinzo Abe administration is forecast to suffer further pressure as its monetary policies have not brought desired results and the Japanese economy continues growing slowly.

“To pursue the growth rate target of 6.7 percent, policies to encourage private sector’s investment are extremely necessary,” the report said. But Vietnam might be hard pressed to lure foreign investment capital for its socioeconomic development.
This will hinder the growth of Vietnamese exports, especially in the context of the FDI sector remaining a driving force of Vietnam’s export growth.

“Given the stalled TPP and the trend of global investment flows returning to the US and other developed economies, Vietnam should have much difficulty in attracting FDI this year,” it said.

On the other hand, Vietnam will have more opportunities to attract foreign investment and promote foreign trade as investors are moving investments from China to neighboring countries, according to the report. However, this trend will be adversely affected if the US economy grows rapidly encouraging investors to invest in the US and other developed countries.

Given the Fed’s interest rate hikes, the exchange rate for the USD will increase. This, along with the recovery of prices of essential kinds of goods, especially energy and food, will affect Vietnam’s consumer price index (CPI) in 2017. The inflation rate is predicted to reach 4.3-4.5 percent, higher than the four percent target set by the National Assembly. Food prices will possibly increase due to limited supplies caused by unseasonably warm weather at the end of 2016 and unfavorable weather in early 2017.

Moreover, the recovery of global fuel prices will create pressure on domestic fuel prices. If the government is determined to pursue the 6.7 percent growth target, the State Bank of Vietnam will possibly have to continue loosening the monetary policy and create more pressure to increase price indexes, the Market Intello analysts say.