Vietnam's GDP to grow by 6.6 percent in 2018: ICAEW
Updated : Thursday, June 07, 2018 3:12 PM (GMT+0700)

Vietnam’sgross domestic product (GDP) is expected to grow 6.6 percent in 2018, downslightly from 6.8 percent last year.

Illustrative image - Source: VNA

The forecast was made by theInstitute of Chartered Accountants in England and Wales (ICAEW), who organiseda seminar on economic insight for Southeast Asia in Hanoi on June 5.

Growth in the region isforecast to come in at 4.9 percent from 5.3 percent last year, as a result ofmoderate export growth across the region from the sharp acceleration last year.

Unlike the US and Europe,Asia had a promising start this year, with Southeast Asia economies expanding5.2 percent year-on-year, slightly softer than the 5.3 percent in the previousquarter.

In Vietnam, economic growtheased back in the first quarter, to 7.4 percent year-on-year, following astellar end to last year.

However, the quarterlyresult was still the strongest Q1 outcome in a decade driven by ongoingstrength in the manufacturing sector, solid service sector activity andimproving agriculture output.

Mark Billington, ICAEWregional director for Southeast Asian, said: “Although for Vietnam externaldemand is expected to moderate, domestic demand is forecast to strengthen in2018, driven by solid foreign direct investment inflows, buoyant consumer spendingand expansionary monetary policy conditions”.

“In 2019-20, we expectgrowth to ease back slightly to around 6.3 percent from our forecast of 6.6percent this year amid a less expansionary monetary policy and a maturing ofthe global trade cycle”, he added.

Monetary conditions willalso remain supportive of domestic demand.

In July last year, thecentral bank lowered its rediscount and refinancing rate to 4.25 percent and6.25 percent respectively.

The increase in privatecredit will also encourage household spending.

The State Bank of Vietnamaims to achieve credit growth of 17 percent this year after bank lendingincreased by 18.2 percent last year.

However, this rapidexpansion of lending does raise risks to financial stability and inflation.

Indeed, while headlineinflation has so far been below the government’s 4 percent target this year,inflation is expected to rise to an average of 3.9 percent this year as foodprices exert less of a drag.

But there is a risk thatprice pressures pick up more significantly. In this event policy makers willeither need to accept lower growth rates or take a chance on inflation.

Separately, rising US-Chinatrade frictions have increased the risks of a “bad case” trade war scenario.

As a small open economy heavilydependent on external trade, an increase in protectionism and slower globaltrade would have significant knock-on effects for Vietnam, even if it is notthe direct target of increased tariffs. Its dependence on foreign investorflows also make it vulnerable to changing global sentiment, attendees heard atthe seminar.

Nonetheless, it is morelikely that tariff imposition will be contained and greater intra-regionaltrade and the increase in domestic demand’s contribution to GDP will likelyprotect Asia’s growth to some extent.

Commenting generally on theregion, Sian Fenner, ICAEW Economic Advisor and Oxford Economics Lead AsiaEconomist, said: “Manufacturing Purchasing Managers Index (PMI) and recenttrade data all point to a more moderate growth in the region going forward.This is consistent with our view that export growth across the region will easefrom 2017’s performance, reflecting softer Chinese import demand andnormalisation in the global electronics cycle”.

ICAEW forecast moderateeasing in Southeast Asia’s GDP growth to 4.9 percent in 2018. The slowdown isexpected to be broad-based, with only Indonesia growing faster than 2017, shesaid.


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