Fitch Solutions, a macro-research arm of the financial service provider Fitch Group, has newly released the growth forecast after the General Statistics Office of Vietnam (GSO) had reported that the country’s real GDP growth reached 7.02 percent in 2019.
|Vietnam’s economic growth to slide slightly in 2020.
However, the research entity expects further growth in the construction and services sectors over the coming quarters to partially offset the moderation in the aforementioned sectors.
The easing of growth in the final quarter of 2019 was mainly due to weakness in the industrial sector, which saw its growth ease to 7.3 percent on year, from 10.4 percent on year in the third quarter of 2019. It saw the industrial sector’s growth contribution fall to 2.1 percentage point (pp), from 3.0 pp in the third quarter of 2019.
Droughts weighed on crop output, while the outbreak of African swine fever, which has affected across the country. Accordingly, the growth of the agro-forest-fishery sector slowed to 1.6 percent on year in the final quarter of 2019, from 2.0 percent on year in the third quarter and contributed 0.2pp to the growth in the final quarter, versus 0.3pp in the previous quarter.
Transport and logistical infrastructure and human capital bottlenecks will continue to weigh on growth of the manufacturing sector, which accounts for around 16.5 percent of the Vietnamese economy.
The US-China trade war accelerated the structural shift in low-end electronics manufacturing and textiles manufacturing out of China and into ASEAN, with Vietnam being a major beneficiary. However, the rush to set up operations and export out of Vietnam has put considerable stress on the existing road and port infrastructure, resulting in severe traffic congestion in and around major cities such as Ho Chi Minh City and Hanoi, and also week-long delays at the ports, according to media reports.
Indeed, the country’s export growth has decelerated since September 2019 and this trend is predicted to persist over the coming months.
Meanwhile, the growth of manufacturing production slowed sharply to 6.5 percent on year last November, its lowest level since 2017.
Separately, the growth of the agriculture sector, equivalent to 14 percent of the country’s GDP, will also be under pressure in 2020 due to hydroelectric dam projects upstream of the Mekong.
In particular, progress on the construction of the North-South expressway, which began in September 2019 and is expected to be completed by 2021, will be a key project supporting the construction sector. There are upside risks to construction growth should construction on the proposed $55.8 billion North-South Express Rail indeed begin in 2020 as the government has currently planned.
Services growth would be underpinned by four key sub-sectors. A strong increase in real wages (even if the inflation continues to print around 5-6 percent over 2020, similar to the December 2019 reading of 5.2 percent on year), in part driven by skills shortages would support a continued rise of Vietnam’s middle class.
In a related move, the Asian Development Bank (ADB) has recently trimmed its forecasts for economic growth in developing Asia next year as the growth in the People’s Republic of China (PRC) and India is weighed down by both external and domestic factors.
However, ADB has adjusted the forecast for Vietnam’s economic growth upward from 6.7 percent to 6.8 percent for 2020.