Vietnam’s growth to remain under pressure in 2019

Fitch Solutions maintains its forecast that Vietnam’s real GDP growth will come in at 6.5% in 2019, a fall from 7.1% in 2018, partly due to unfavourable base effects potentially occurring in the remainder of 2019 and slowing global demand.

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Source: General Statistics Office of Vietnam, Fitch Solutions

The General Statistics Office of Vietnam reported that the country’s real GDP growth reached 6.7 per cent on year during the second quarter of 2019, down from 6.8 per cent on year in the first quarter.

Fitch analysts expect unfavourable base effects to continue weighing on growth, particularly during the year’s final quarter.

In addition, easing external demand is expected to hamper growth in the manufacturing sector. Despite this, resilient growth in construction activities and services should continue to support the overall growth outlook.

While the continued structural shift in manufacturing facilities from China, which is also likely to quicken amid uncertainty from the US-China trade war, and the signing of the Vietnam-EU Free Trade Agreement on June 30, would provide a boost to the Vietnamese economy, supply chain realignment will be a long process. Therefore, positive impacts are predicted to show in the 2020 growth prints.

As such, Fitch Solutions retains its forecast for the country’s real GDP growth to slow to 6.5 per cent in 2019, but would revise up the 2020 growth forecast to 6.8 per cent.

The second quarter of 2019 saw a slight contraction in agricultural production, which came in at 2.2 per cent on year against 2.8 per cent on year in the year’s first quarter. This was mainly caused by the African swine fever outbreak which has spread to 60 out of 63 provinces nationwide. Furthermore, news reports indicate that the country has culled 2.8 million pigs, approximately 10 per cent of the total pig herd, in an attempt to halt the outbreak.

This outweighed slight growth acceleration in industrial activity, construction, and services, which came in at 9.2 per cent on year, 8.7 per cent, and 6.9 per cent, respectively.

Slowing external demand on the back of slowing global growth will weigh on the country’s industrial production, particularly in the manufacturing sector, for the remainder of 2019, although the research unit still expects the sector to be the largest contributor to growth.

Fitch Solutions said that global growth could slow to 2.9 per cent in 2019, a drop from 3.2 per cent in 2018, while expecting this to negatively affect the country’s electronics exports which account for 40 per cent of the total exports.

 

Despite some drag from manufacturing, the development of construction sector and services would remain resilient and provide some support to the overall growth outlook.

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Source: Ministry of Planning and Investment, Fitch Solutions

Strong foreign direct investment (FDI) in real estate businesses during 2018, as well as in the first five months of 2019 should enable construction activities to remain robust over the coming quarters.

Real estate FDI inflows surged to US$6.6 billion in 2018, or 18.6 per cent of the total registered investment capital, from US$3.05 billion in 2017, up 8.5 per cent on year. The first five months of 2019 saw the FDI inflow of US$1.38 billion into real estate, representing 8.2 per cent of the total registered investment capital.

Total FDI inflows into Vietnam are expected to remain robust and this should also support services activity over the coming months. FDI in the processing and manufacturing sector was estimated at US$12 billion in the first five months of 2019, achieving 72 per cent of the 2018 total of US$16.58 billion.

Moreover, robust investment in the processing and manufacturing sector will provide strong opportunities for warehousing and transport services and financial services.

Separately, foreign real estate businesses such as Frasers Property, which have penetrated into the Vietnamese market, appear to be looking at property management on top of development. This trend is likely to provide support to growth in real estate services, Fitch Solutions noted. VOV

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