The Hanoitimes - The FDI sector remained a bright spot of the economy, playing a crucial role in economic growth through exports.
Vietnam’s GDP is projected to expand 6.96% in 2019 with inflation rate at 3.5%, coming on the back of strong GDP growth of over 7% in the remaining two quarters, according to Nguyen Duc Thanh, director of the Vietnam Institute for Economic and Policy Research (VEPR).
Thanh made the positive prediction at the launch of the VEPR’s quarter macroeconomic report on July 11, expecting Vietnam to hold comparable advantage from the shift of the FDI flow amid the US-China trade war.
Overview of the seminar. Source: Nguyen Tung.
“Moreover, recent trade deals such as the Comprehensive and Progressive Trans – Pacific Partnership (CPTPP) and the recently signed EU-Vietnam Free Trade Agreement (EVFTA) would create more room for growth in the last few months of 2019,” Thanh said.
Thanh, nevertheless, added there have been signs of concern as the economy grew 6.71% year-on-year in the second quarter, lower than the figure of the first quarter at 6.79%. In the six-month period, the country recorded GDP growth at 6.76%, lower than the 7.05% expansion in the January-June period of 2018.
“All three key economic sectors, including the agro-forestry-fishery, service and industrial sectors slowed down in the first half of 2019,” Thanh asserted.
In this circumstance, the FDI sector remained a bright spot of the economy, playing a crucial role in economic growth through exports, he added.
Banking expert Can Van Luc said Vietnam’s economy is unlikely to repeat such high growth seen last year, which could be in range of 6.6-6.7% as driving growth have been underperforming compared to a year earlier.
Export growth in the first six-month period stood at over 7%, much lower than the 16%-rate recorded in the same period last year, while Vietnam’s exports to main markets such as the EU or China have been slowing down.
Minister of Planning and Investment Nguyen Chi Dung in his recent remark said Vietnam’s GDP growth remains on track to reach 6.78% in 2019, which is in line with the target of 6.6-6.8% set by the National Assembly.
Meanwhile, the World Bank in its latest “Managing Headwinds” report forecast Vietnam’s economic growth is projected to moderate to 6.6% in 2019, driven by tightening and slower private consumption and weaker external demand.
Alex Mourmouras, division chief at International Monetary Fund (IMF), said in a statement that “a soft landing of growth is expected, to 6.5% in 2019 and over the medium term, reflecting weak external conditions. Inflation is expected to pick up slightly in 2019 on the back of administered price increases but should remain below the authorities’ 4%-target.”
Stable exchange rate in 2019
Major economies such as the US and Europe have stopped the normalization of monetary policy, thus relieving pressure on the State Bank of Vietnam (SBV) in exchange rate policy management, stated VEPR’s report.
This would result in a stable exchange rate in 2019, according to the report.
VEPR’s report pointed to three reasons behind such prediction. Firstly, there is a possibility that the US Federal Reserve (FED) may lower interest rates next month, affecting significantly the value of US dollar and its exchange rate.
Secondly, most currencies in Asian economies are considered undervalued compared to the US dollar.
Thirdly, Vietnam has been included in US watchlist for currency manipulation since May 2019, putting the SBV under pressure to manage the exchange rate flexibly and restricting the use of monetary policy to gain trade advantage.