Standard Chartered Bank (SCB) expects Vietnam’s growth to slow to a multi-year low of 3% this year on soft external demand, and external economic factors set to offset domestic performance.
Chidu Narayanan, Economist for Asia at SCB discussed the research and said, “Growth is likely to rebound in the second half of the year (H2) driven by the strength of the domestic economy; global headwinds are likely to partially offset this.”
He added that, “Vietnam’s dependence on the global economy is the second highest in ASEAN after Singapore; its trade-to-GDP ratio of 198% is among Asia’s highest, and is driven by electronics exports. We expect 3% growth in Vietnam in 2020; further monetary and fiscal support in H2 could push growth closer to the Government’s target of 4 ~ 5%.”
According to SCB, the manufacturing and services sectors are likely to recover and be the main growth driver in the second half of the year. The manufacturing sector growth is estimated at roughly 1.5% in 2020, with its contribution to growth down 1.8% points. The services sector’s contribution to growth is likely to fall to 0.5% points from 2.8% points in 2019.
Construction activity is expected to decline on subdued sentiment and declining foreign direct investment (FDI). However, public infrastructure investment is likely to be stronger than in the past 18 months, driven by Government stimulus.
A slowdown in tourism and related activities is likely to weigh on consumption, which is projected to pick up in H2 following the reopening of the economy but to remain below 2019 levels.
Vietnam’s trade is expected to increase in H2 as global demand recovers, but a recovery to pre-COVID levels is unlikely. Demand from China should support a pick-up in both exports and imports near-term; however, global demand is likely to impact trade growth.
FDI inflows are also forecast to decline this year on heightened uncertainty and depressed investment sentiment globally. The relocation of manufacturing to Vietnam by companies who are leaving China, or who are developing a “China + One” strategy will offset subdued FDI inflows and FDI could expand in H2 if more companies decided to relocate to Vietnam.