Annual Information Service
Vietnam Country Risk Report Q2 2020
|Published by||Fitch Solutions, Inc.||Product code||177811|
|Published||annual subscription||Content info||67 Pages|
|Vietnam Country Risk Report Q2 2020|
|Published: annual subscription||Content info: 67 Pages||
We forecast Vietnam's 2020 real GDP growth to come in at 6.8%. Real GDP growth eased to 7.0% y-o-y in Q419, from an upwardly revised 7.5% y-o-y in Q319,
due mainly to an easing of growth in the industrial sector. Infrastructure and human capital bottlenecks will likely continue to cap growth of the manufacturing
sector, and continued damming upstream of the Mekong River from Laos and the outbreak of African swine fever will weigh on growth of the agriculture sector.
That said, this is likely to be partially offset by a strengthening of growth in construction and services.
We forecast credit growth in Vietnam to stabilise at 12.5% in 2020 versus 12.1% in 2019. The fulfilment of Basel II requirements of larger lenders by 2020, on
top of targeted monetary easing during the end of 2019, should support the pick-up in credit growth. A stabilisation of credit growth would reduce pressure
on the Vietnamese central bank to ease interest rates further, and allow the central bank to instead focus on managing overshooting inflation. We have revised
our 2020 average inflation forecast to 5.2%, from 3.5% previously.
We maintain our 2019 fiscal deficit forecast at 6.6%, but have revised up our 2020 and 2021 fiscal deficit forecasts for Vietnam to 7.0% and 7.2%, respectively,
from 6.6% previously. This follows the release of the Ministry of Finance's three-year budget estimates in October, which indicates high debt repayments over
2020 and 2021. Our forecasts are fairly in line with the government's projections, given the government's strong track record of meeting their fiscal deficit tar-
gets. Risks to our deficit forecast stem heavily from debt repayment. A larger repayment than the government had initially forecast would see the deficit come
in wider than we forecast, vice versa.
We maintain our stable outlook for the Vietnamese dong over the short term, and for only slight currency weakness over the longer term. Accordingly, we
forecast the Vietnamese dong to average VND23,475/USD in 2020 and VND23,650/USD in 2021. Weaker foreign direct investment inflow and higher imports
will be key drivers of dong weakness over the near term, although a strong foreign reserves position should allow the central bank to safeguard the currency
against excessive downside volatility to avoid potential punitive measures from the US. We maintain our view for the dong to gradually depreciate against the
US dollar over the long term due to its overvaluation and Vietnam's higher inflation vis-a-vis the US.
Vietnam's bilateral relations with its Mekong region neighbours appear to be broadly improving. Being the only country in the region which is at loggerheads
with China over a maritime dispute, Vietnam is likely doing so in an attempt to defend itself against growing Chinese influence over its Mekong neighbours.
Laos, Cambodia, and Myanmar, would benefit from economic support as a result of the regional diplomatic tussle between Vietnam and China.
The potential for renewed maritime dispute with China poses downside risks to Vietnam's otherwise stable short-term political outlook.
Should the Trump administration introduce fresh tariffs on US imports of Vietnamese goods, this would pose a salient risk to Vietnam's export sector, and
consequently our economic growth forecast, given the sector's strong orientation to the US economy.
Economic policy slippages could dent investor confidence, and result in a slowdown in FDI inflows and manufacturing growth.
Vietnam Country Risk Q2 2020fitchsolutions.com