Vietnam’s economy is forecast to expand between 6.84% and 7.02% in 2019, above the government’s growth target of 6.6-6.8% set for the year, driven by manufacturing and rising disposable income, amid a potential global slowdown, a think tank has said.

The growth could accelerate to 7.0-7.2% in 2020, said Dang Duc Anh, a researcher at the National Center for Socio-economic Information and Forecast (NCIF), at a workshop in Hanoi on December 12.

The Vietnamese government aims to grow the economy by 6.6-6.8% next year. The country’s GDP is likely to expand 7.0% this year, above the initial target of 6.7%, Prime Minister Nguyen Xuan Phuc said at a dialogue with development partners in Hanoi last week.

Vietnam’s GDP rose 6.98% in the first three quarters of 2018, improving from 6.4% a year earlier.

Luong Van Khoi, NCIF’s vice director, was upbeat that if the reform momentum continues into 2019, the local economy will probably expand 6.8% or even higher by 7.0% next year.

Domestic improvements versus global uncertainties

According to scenarios mapped out by Dang Duc Anh from NCIF, Vietnam could reach the abovementioned growth rates if the global economy advances 3.60-3.64% in 2019 and 3.40-3.48% in 2020, and Vietnam’s credit growth hovers around 16.5-17% per year.

The projections stand out especially when the global economy is poised to face more headwinds such as a slowdown in trade and economic growth, the tightening of monetary policies in major economies including the US, and rising trade protections, Anh said.

Meanwhile, in Vietnam, the participation in more free trade agreements like the EU-Vietnam FTA and a trans-Pacific trade deal with other 10 countries will help Vietnam diversify markets and boost external trade. Other tailwinds can come from the continued improvement in economic restructuring and the business environment, the rerouting of investment from China, and rising consumer power thanks to the expansion of the middle-income class, the researcher pointed out.

Moving away from labor-intensive industries, the drivers for the Vietnamese economies in the next two years are the thriving of the private sector, institutional reform and improvement of the business environment, and moving up the value chain with new technologies and higher productivity, Anh noted.

Risks

The researcher also warned of major risks to the local economy in the 2019-2020 period. Among them, Vietnam is becoming more dependent on foreign-invested enterprises while the weighting of the domestic sector has reduced. Foreign companies make up some 70% of Vietnam’s exports and their hefty trade surplus helps offset the huge trade deficit by domestic peers.

In addition, credit growth and money supply remain high, posing potential risk to sovereign debt and macro-economic stability. Coupled with it, public debt is touching the ceiling and debt service is rising.