VINACHEM

Capital Economics expects Vietnam’s economy to grow by around 7% this year, with strong export demand once again set to be the main driver of economic growth, despite global challenges.

Gareth Leather, a senior economist with the London-based independent economics research house, said in the latest Emerging Asia Economics report that Vietnam grew by a robust 7% in 2019, the second consecutive year of 7%-plus growth as he cited figures released by the General Statistics Office of Vietnam.

Despite the weakness of global growth over the past year, Leather said Vietnam's exports have continued to expand at a decent rate.

“While low labor costs, political stability and its close integration into the supply chains of southern China explain some of Vietnam’s export success, the country has also emerged as one of the main beneficiaries of the U.S.-China trade war,” he stressed.

He explained that U.S. tariffs on Chinese imports have led importers to seek alternative suppliers, which has led to a surge in Vietnam’s exports to the world’s largest economy.

There are two key risks facing the Vietnamese economy over the coming year, the economist said. The first is rising protectionism, due to worries that Vietnam’s growing bilateral trade surplus with the United States could lead to retaliatory action.

The other main risk is the outbreak of African swine fever, which has led to a sharp rise in pork prices and helped push up inflation to 5.2% year-on-year last month, the highest rate since January 2014.

“Experience from elsewhere suggests that until a vaccine is found, inflation is likely to remain high,” he added.

Capital Economics does not think the rise in inflation will prompt the State Bank of Vietnam to tighten monetary policy, noting that the central bank tends not to respond to temporary jumps in prices.

However, the economic research company predicts “higher inflation will weigh on the purchasing power of consumers, which will drag on growth prospects.” - SGT -