Two scenarios for Vietnam GDP growth in 2020

Trường Lăng

February 5, 2020

The National Center for Socio-Economic Information and Forecast – NCIF (Ministry of Planning and Investment) has just released Vietnam economic growth forecast for 2020 with 2 scenarios. In particular, the basic scenario is that GDP growth in 2020 will gain 7.01%, a slight decrease compared to 2019, the lower growth scenario is that GDP growth will be only 6.76%. All in all, the expectations remain ambitious, setting objectives slightly higher than 2019.GDP growth is expected to remain between 6.76 and 7.02%

International trends go in favor of Vietnam

“Vietnam GDP growth forecast in 2020 provided by NCIF is not optimistic, nor pessimistic. It is based on the results achieved in 2019, as well as the results that are expected to gain in 2020. They take into account both objective and subjective factors ”, PhD. Luu Quang Khanh, Director of NCIF said.
The results achieved in 2019 are the factor for the 2020 GDP to increase from 6.76% to 7.01%, according to PhD. Dang Duc Anh, Deputy Director of NCIF.
Foreign investment capital continues to shift from the Chinese market. The proportion of indirect investment through M&A increased sharply. Indeed, in 2019, $38 billion of foreign investment capital have been attracted to Vietnam. Purchase by foreign investors’ share reach a total value of capital contribution of USD 15.5 billion, up 56.4% compared to 2018.
Consumption maintained a high growth rate thanks to the increase of middle class; Monetary policy is carefully controlled by the State Bank, so although the serious influence by African swine fever, the inflation in 2019 is only at 2.79%. Interest rates and exchange rates are controlled and adjusted at a low level, which is premise for macroeconomic stability and economic growth.

Limitations and unbalance affects economic growth

“However, in 2019, inherent limitations and weaknesses of the economy have not been overcome, that is the supporting industry is underdeveloped, the processing nature is still great. Industrial production has not been much involved in the global production and value chains.” Mr. Duc Anh analyzed.
“Exports still depend on a group of commodities: electronics, phones, computers and components. The $263.45 billion export are mostly done by foreign-invested enterprises. In 2019, mobile phones and components industry turnover gained USD 51.8 billion, accounting for 19.7% of total export turnover. Electronics, computers and components industry turnover gained USD 35.6 billion. Finally, the export of agricultural and fishery products encounters many difficulties, hard to access to markets, which require quality and food safety” continued Mr. Duc Anh.
In addition, there are quite a few shortcomings and limitations of 2019, which will be updated by NCIF in the 2020 Economic Prospects Report that will be submitted to the appropriate authorities for research. It is the ability to expand the export market in difficulty, increasing export markets mainly from trade diversion.
The contribution of high value-added services such as finance, banking, insurance, etc. is low, especially the cost of logistics services is very high, reducing the competitiveness of domestically produced goods.
“Disbursement of basic construction investment capital, divestment and equitization of state-owned enterprises in 2019 are lower than previous years. The infrastructure in many localities is overloaded, as well as the shortage of skilled workers has been to be a barrier for the economy to maintain the growth rate around 7% in 2020 and the following years”, Mr. Duc Anh emphasized.

The trade war consequence will impact Vietnam GDP in 2020

NCIF forecasts that by 2020, the lowest GDP growth will reach 6.76%, shy of the 6.8% target set by the National Assembly. This growth is set by NCIF in the context of lower world economic growth in 2019.
Trade tension among the world’s major economies continues to escalate, plus technical barriers to restrict imports are built by major markets. Even though this growth is set in the context of the agricultural sector suffered many negative effects due to climate change. Foreign investment and the private sector must take in consideration the decline of manufacturing and processing sector.
“The world economy just needs a slight increase compared to 2019. Vietnam continues to take advantage of opportunities from trade conflicts among the major powers to attract investment, as well as boosting export and 2020 GDP growth is forecast to reach 7.01%”, Mr. Duc Anh said.

International economic and political situation are expected to affect Vietnam

Reviewing the world economic – political situation, PhD. Tran Toan Thang, Manager of NCIF said that despite of the instability and conflict between the United States and Iran, the price of oil would not fluctuate sharply, if any increase in price, it is only temporarily increased, then it will be stabilized by the United States as the gas-consuming power country, previously dependent on imports, but it has currently been proactive, even participated in the export market of this strategic item thanks to shale oil extraction technology.
“Regarding the trade war, we should not just look at the tariff barriers or the non-tariff barriers. These are temporary signs that are easy to see, that affect the economies immediately. We must look deeper, the trade war affects production activities, global economic growth, as well as locally. Especially international-facing countries like Vietnam are bound to be affected. Therefore, in 2020 Vietnam economy as well as the world will absorb the consequences of the trade war”, Thang warned.
Meanwhile, Ms. Nguyen Thi Van Anh, an economist of the International Monetary Fund, is concerned about the impact of climate change, sea level rise and environmental pollution on Vietnam’s economy as well as the world in 2020 and the following years.

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