Vietnam Strongly Positioned to Benefit from Numerous Free Trade Agreements
The medium-term outlook is broadly favorable, significant downside risks are tied to weak external demand, global financial volatility, and incomplete banking and state- owned enterprise (SOE) reforms.
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Vietnam’s economy continues to show fundamental strength, supported by robust domestic demond and export-oriented manufacturing. The extreme poverty rate is estimated to have declined to below 3 percent.
The medium-term outlook is broadly favorable, significant downside risks are tied to weak external demand, global financial volatility, and incomplete banking and state- owned enterprise (SOE) reforms. On the upside, Vietnam is strongly positioned to benefit from numerous free trade agreements that are coming into force now and over the forecast period.
Vietnam’s economy continues to show fundamental strength, supported by robust domestic demand and export-oriented manufacturing. Following 6.8 percent growth in 2017, preliminary data indicate that GDP growth accelerated to 7.1 percent in 2018, underpinned by a broad-based pickup in economic activity.
Growth in the agriculture, forestry, and fishery sectors accelerated to 3.5 percent from 2.8 percent in 2017. The industrial and construction sectors expanded by 8.5 percent, driven by robust growth of 13 percent in manufacturing that benefitted from healthy external demand. The services sector posted 7.2 percent growth, supported by sustained strength in domestic consumption and tourism.
Strong economic activity has supported continued employment creation and poverty reduction. Unemployment was unchanged at 2.2 percent in 2018, as in 2017, and underemployment declined to 1.5 percent.
Vietnam’s monetary policy continues to balance its dual objectives of maintaining stability while supporting economic growth. While the monetary policy stance remains broadly accomodative, the SBV introduced some tightening of credit in 2018 by setting credit growth limits for commercial banks and controlling lending to high risk sectors (real estate, securities, and consumer market).
Liquidity in the banking sector also tightened markedly, due to slower deposit growth pushing up short term interbank interest rates. Amid tighter financing conditions, credit growth moderated to about 14 percent (year-on-year) in 2018 from 18 percent in 2017. Nevertheless, corporate and household balance sheets are increasingly leveraged with Vietnam’s credit-to-GDP ratio at about 135 percent.
