The Hanoitimes – Higher inflationary pressure, unstable crude oil and gas prices from geopolitical tension and the ongoing US – China trade war are among major risks to Vietnam’s economy this year.
Vietnam is forecast to reach GDP growth of 6.48% in 2020 amid growing global uncertainties, meaning the 6.8% target set by the National Assembly is very challenging, said Nguyen Duc Thanh, director of the Vietnam Institute for Economic and Policy Research (VEPR).
|Overview of the workshop. Source: Ngoc Thuy.|
Higher inflationary pressure, unstable crude oil and gas prices from geopolitical tension in Iran and the ongoing US – China trade war are among major risks to Vietnam’s economy this year, said Thanh at the launch of VEPR’s quarterly macroeconomic report on January 16.
Thanh cited the consumer price index (CPI) last December which rose over 5% versus the end of 2018, due to a surge in food prices, as a reason for concern. The upcoming Lunar New Year festival is expected to boost consumption demand, and, therefore, could lead to a strong push to the CPI.
|Data: VEPR’s report. Chart: Ngoc Thuy.|
In 2019, despite the second consecutive annual growth of over 7%, the sustainable development of the Vietnamese economy remains “questionable”, as the mining industry for the first time in three years grew 1.29% year-on-year, contributing 0.09 percentage points to the overall growth, Thanh added.
On the supply side, investment from the foreign-invested and private sectors remains the driving force for growth. Thanh noted the US – China trade war is causing a shift in investment from China to Vietnam, however, this could lead to “issues” related to environment and management of foreign workers.
“In the long term, Vietnam’s economic prospects would continue to depend on FDI, removal of legal barriers, and state sector restructuring,” Thanh stressed.
As the US has recently included Vietnam in its monitoring list for currency manipulation, Thanh expected the State Bank of Vietnam (SBV), the country’s central bank, to be cautious in managing the monetary policy.
“A depreciation of the Vietnamese dong to boost exports is not the right thing to do at this moment,” Thanh added.
Thanh expressed concern that while the US is Vietnam’s largest export market, China, on the other hand, is the country’s largest importer, adding Vietnam must carefully manage its trade relations with these two major economies.
In its latest move, the US’s decision to impose a 400% countervailing duty on Vietnamese steel raised questions about transshipment and other countries forging Vietnamese origin for their products and goods, said Thanh.
“As the US is hardening its stance towards international trade, Vietnam should not become a “backyard” for China and other countries in exporting products to the US,” Thanh stated.
Meanwhile, economist Vo Tri Thanh said while the government set “breakthrough” as a slogan for 2019, there have not been many breakthroughs in the economic development as it should be, particularly in reform.
“Vietnam remains far away from the target of breaking into the top four business-friendly countries in Southeast Asia,” said the economist, while sustainable development is becoming a huge issue for major cities such as Hanoi and Ho Chi Minh City with worsening environmental pollution.
Regarding this issue, banking expert Can Van Luc cited a study from the World Bank suggesting environmental pollution could lead to a loss equivalent to 5% of GDP in Vietnam.
Luc also said that Vietnam’s economic resilience against external shock is still considered weak. Although the country’s foreign exchange reserves have hit a record high of US$79 billion, such an amount is only equivalent to 3.7 months of imports, much lower than the average in ASEAN which is four to five months, and six to eight months in developed countries.