Vietnam is one of only four Fitch-rated sovereigns in the Asia Pacific that Fitch Ratings expected to post positive economic growth in 2020.
Vietnam is positioned to stand out among Asia's frontier and emerging markets this year in terms of its economic resilience and success in bringing the Covid-19 pandemic under control, according to Fitch Ratings.
|Vietnam economic resilience out-performs Asia's frontier sovereigns: Fitch Ratings.|
These factors should support Vietnam's 'BB' rating, which the rating agency affirmed in April 2020 while revising the Outlook to Stable from Positive. Nevertheless, the country faces a number of challenges, including contingent liability risks from state-owned enterprises and structural weaknesses in the banking sector, Fitch said.
Official data show the economy expanded by 0.4% year-on-year in the second quarter, despite the impact of the coronavirus pandemic on tourism and export demand, in line with Fitch's full-year 2.8% growth projection. Fitch forecasts that the pace of expansion will accelerate in 2021, as external demand, including tourism exports, recovers.
Meanwhile, slower economic growth and loan forbearance will add to asset quality problems. These factors will aggravate the structural weaknesses in the banking sector, such as low capital buffers and under reporting of problem loans, which have already dragged on the sovereign rating. Slower credit growth may, however, provide some relief on capital.
Economic outlook remains vulnerable
However, Vietnam's economic outlook remains vulnerable to shifts in external demand. The country has benefitted from trade diversion associated with rising costs in China and the US-China trade war, and early data suggest it made further gains as China's exports were disrupted by the coronavirus.
Vietnam's share of US apparel and textile imports rose to 15.5% in the first four months of 2020, from 12.9% in the same period last year, according to the US Office of Textiles and Apparel. The country also attracted a healthy US$8.7 billion in realized capital investment from overseas in the first half of this year.
Nonetheless, Fitch's base assumption is that trade ties with both countries will remain stable.
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