Vietnam’s GDP growth in 2019 is forecast to reach 6.56% in the worst scenario figured out by the Vietnam Institute for Economic and Policy Research (VEPR), significantly lower than last year’s growth rate of 7.08%, largely due to the less favorable world economic conditions.
Overview of the launching ceremony. Source: Nguyen Tung.
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“The impact of the escalation of US-China trade war tensions puts Vietnam under new pressures,” Nguyen Duc Thanh, VEPR’s director, said at the launch of the report on May 29.
Thanh added the new uncertainties put the country at risk of a trade deficit exacerbated by the Chinese exports and increased competition in the domestic market as both the US and China can boost their exports to Vietnam.
In addition, other countries also want to seize opportunities from the US-China trade war to boost their exports to the US and China, so “it is not easy for Vietnam to increase exports to both markets,” Thanh asserted.
For the second scenario, the growth rate is projected at 6.81%.
“This scenario is more feasible, thanks to economic growth momentum of 2018, coupled with the government's efforts to improve competitiveness and productivity, reflected by the high relative growth of major industries in the early months of 2019,” Thanh stated.
According to the report, Vietnam’s state and the private sectors are doing well on the international trade. This can be seen in the export growth rate of domestic enterprises which are higher than that of FDI enterprises in the first quarter of 2019.
This is different from the trend of many years ago because FDI enterprises always achieved higher growth rates than those of domestic enterprises.
Inflation more difficult to control
Regarding to CPI, inflation is expected to become more difficult to control in 2019 and it is likely to reach 4-5%, suggested VEPR’s report.
In the first scenario, with economic activity slower than expected, inflation will reach 4.21%, while in the second scenario, the annual inflation rate is forecast to reach 4.79%, higher than the 4% target of the National Assembly.
There is higher possibility that the risk of inflation in the second scenario can occur if there is a resonance from both rising internal and external inflationary pressures. In terms of internal pressure, prices to be adjusted upwards for public services as well as petroleum at the beginning of 2019 will put great pressure on inflation.
By the end of April 2019, the consumer price index increased by 2.93% year-on-year and is showing an upward trend. Meanwhile, this rise only reflects a very small part of the government's price adjustments due to their latency. In terms of external pressure, world crude oil prices may continue to rise due to escalation of the Middle East tensions and cutting world crude oil supply. In order to curb inflation, regulating authorities will need to closely monitor prices in the second half of the year.
The State Bank of Vietnam (SBV) should be cautious about regulating money supply, interest rates and credit in the coming months if it wants to maintain inflation level within its target, the report noted.
