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UOB: Vietnam moving towards robust growth in 2019

Released at: 08:29, 20/01/2019

UOB: Vietnam moving towards robust growth in 2019

Photo: UOB

Economy expected to grow 6.7%, UOB research finds, on the back of robust domestic demand, strong manufacturing production, and increasing FDI.

by Hong Nhung

Vietnam’s economy accelerated in the fourth quarter of 2018, expanding 7.3 per cent vs. 6.8 per cent year-on-year in the third quarter, according to the “Global Economics & Market Research” report from Singapore’s United Overseas Bank (UOB).

Growth for the year as a whole was 7.1 per cent, up from 6.8 per cent in 2017, driven mainly by agriculture (3.8 per cent), industry and construction (8.9 per cent), and services (7 per cent), in particular wholesale and retail, transport, banking and finance, education, and healthcare.

Manufacturing production and FDI also remained significant growth drivers. A surge in disbursed FDI, amounting to $19.1 billion, kept the economy on a robust expansion path. The manufacturing and processing sector garnered the most interest from foreign investors in the period, accounting for $16.6 billion, or 47 per cent, of registered capital.

The real estate sector followed, with $6.6 billion, or 18.5 per cent, then retail with $3.7 billion, or 10.3 per cent. Manufacturing production and exports increased 13 per cent and 13.8 per cent, respectively.

The economy is expected to expand robustly at a 6.7 per cent pace in 2019; slightly below 2018’s 7.1 per cent. High transport and energy infrastructure investments remain important growth drivers. Industrial production will be boosted by the continued opening of new multinational enterprises in labor-intensive, export-oriented manufacturing and processing industries. Unfavorable weather conditions, meanwhile, could undermine agricultural output and mining production.

The US-China trade dispute could also have a spill-over effect on Vietnam, according to the report. Exports are likely to suffer if the two countries reduce their demand for imported goods such as steel, machinery components, telephones, mobile phones and components, and intermediate electrical components. A flood of cheap Chinese products may also affect local industries. Nevertheless, these can all be mitigated if multinational firms in China relocate their manufacturing to Vietnam. Its geographical proximity to China, market access to ASEAN, favorable trade terms with the US, and young labor pool stand Vietnam in good stead.

In terms of monetary policy, it is time for the State Bank of Vietnam (SBV) to normalize monetary policy gradually. UOB expects the central bank to raise the policy rate from 6.25 - 6.5 per cent during the second half of 2019.

As the economy will be looking in good shape and well able to handle a return to higher interest rates, the SBV could start raising its policy rate at a slow pace to reduce financial stability risks, including escalating prices of real estate and other financial assets. Moreover, gradually reducing accommodative monetary policy could help curtail inflationary pressure and keep headline inflation stable in 2019.

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