Vietnam clocks 7.1% growth in 2018; growth to ease this year

Vietnam's economy continued to power through in the last quarter of 2018, growing by 7.3 per cent and beating market expectations.

Overall, Vietnam grew by 7.1 per cent in 2018, up from 6.8 per cent a year ago. This was driven by agriculture, industry and construction, and services, particularly wholesale and retail, transport, banking and finance, education and healthcare.

According to a note by UOB, manufacturing production and foreign direct investment (FDI) remained significant growth drivers. A surge in disbursed FDI-amounting to US$ 19.1 billion in 2018-kept the economy on a robust expansion path.

Meanwhile, the manufacturing and processing sector garnered the most interest from foreign investors in the period, accounting for US$16.6 billion, or 47 per cent of the registered capital.

The real estate sector ranked second with US $6.6 billion, or 18.5 per cent and the retail sector came third with US $3.7 billion, or 10.3 per cent.

In addition, manufacturing production and exports increased by 13 per cent and 13.8 per cent in 2018, respectively.

In 2019, the economy is expected to grow by an estimated 6.7 per cent in 2019, down slightly from 2018's pace.

High transport and energy infrastructure investments remain important growth drivers, while industrial production will be boosted by continued opening of new multinational enterprises in labour-intensive, export-oriented manufacturing and processing industries.

However, unfavourable weather conditions could undermine agricultural output and mining production. The US-China trade dispute could also have a spill-over impact on Vietnam, warned UOB.

Exports are likely to suffer if the two economic superpowers reduce their demand for imported goods such as steel, machine parts, telephones, mobile phones and parts, and intermediate electrical components.

Despite the downside risks, Vietnam could stand to gain if Chinese multinational firms relocate their manufacturing to Vietnam. Its geographical proximity to China, market access to ASEAN, favorable trade terms with the US, and young labor pool stand Vietnam in good stead, said UOB.

UOB also expected the State Bank of Vietnam (SBV) to normalise monetary policy gradually in 2019, hiking the policy rate from 6.25 per cent to 6.5 per cent during the second half of 2019.

"As the economy would be looking in good shape and well able to handle a return to higher interest rates, the SBV could start raising its policy rate at a slow pace to reduce financial stability risks including escalating prices of real estate and other financial assets," said UOB.

"Moreover, gradually reducing accommodative monetary policy could help dwindle inflationary pressure and keep headline inflation to remain stable in 2019."