Vietnam Quarterly Macroeconomic Report -Fourth Quarter 2018 unveiled

According to the report, 2018 witnessed an uneven and unsteady recovery for the global economy. Indeed, many international organisations continuously lowered their forecasts.

The latest estimates show that economic growth in 2018 for the world’s economy was about 3.7 per cent. However, differences remained in growth trends between different country groups and even among countries in the same groups. 

Concerns regarding China's economy continue to grow as its trade and investment growth is expected to carry on its decline due to trade tensions with the United States showing no signs of dissipating.

Whilst China's PMI has dropped below 50, the People's Bank of China has begun to implement monetary easing to stimulate the domestic economy. Although there is still room for fresh policies to be implemented and make a difference, these are testing times for China. 

Aside from unsteady economic growth and the US-China trade war, the world economy in 2018 also witnessed another remarkable event: the process of "normalising" money policy that is occurring in the US and Europe after quantitative easing programs in the past. Meanwhile, it is likely that the Bank of Japan will continue along with its program of quantitative easing due to low inflation. 

2018 saw Vietnam's economy enjoy its highest growth in 10 years, at 7.08 per cent (year-on-year). Growth came from the solid recovery of the agriculture, forestry, fishery, and service sectors, along with the breakthrough of the manufacturing industry.

The FDI sector continued to be the main contributor to growth through exports. The FDI sector in 2018 saw an export surplus of 32.81 billion USD (equal to nearly 14 per cent of GDP).

Regarding business activities, while the number of newly established enterprises and new jobs had little change in comparison with the 2017 figures, the number of temporarily ceased enterprises in 2018 was unusually high. This yields questions over whether the causes are because of the economic structural shift or the fundamental risk of the economy. 

Inflation during the fourth quarter of 2018 showed signs of decline thanks to a sudden drop in energy prices. Average inflation, at 3.54 per cent, reached the National Assembly's target.

In the context of erratic global commodity prices, along with the increase in the environmental protection tax on petroleum which was raised to maximum level from January 1, 2019, the State Bank of Vietnam still needs to evaluate future inflation risks in order to have appropriate measures ready. 

So far, the US-China trade war is having a positive impact on Vietnam's economy. If there is an appropriate exchange rate policy, Vietnam can benefit from this rift, with many companies shifting orders from China.

With regards to long-term impact, as the production supply chain continues to shift away from China to neighbouring countries, Vietnam needs to improve the quality of its institutional, business, and labour environments in order to be ready to grasp this opportunity.

One major challenge facing Vietnam is that infrastructure is not yet ready to receive a huge wave of shifting production, and is not equipped with economies of scale like China and India.