Last week I wrote about some of the achievements in 2018, when the economy hit an 11 year high and now it is time to look at the prospects and opportunities in 2019.
Whilst the Government’s own target for GDP growth is only 6.6 to 6.8% both the party General Secretary and the Prime Minister have stated publicly that they would like to see the economy grow at 7% or higher in 2019. The increase in labour productivity in 2018 (up 5.93%) certainly helped achieve the 11 year record high and further improvements will be needed in 2019 as noted by the PM Nguyen Xuan Phuc[1]. Interestingly this increased productivity is close to the level of the increase in the minimum wage for 2019, which is what employers have been arguing for over the last several years, when wage rises far outstripped increases in productivity, which were actually quite low in comparison to the region.
Export growth is forecast by the National Assembly to reach 7-8%, which also seems quite conservative when looking at past performance, especially considering the benefits that are expected to accrue because of the coming into force of the CPTPP, with furniture and the agricultural sector being tipped as big beneficiaries of the new markets being opened up.
Inflation is expected to stay at a level below 4% helped by the lower than expected credit growth in 2018 (14% vs a forecast of 17-18%) and credit growth is expected to remain at the 14 to 15% level in 2019.
Foreign direct investment is expected to stay at the current record high levels due to the continued movement of manufacturing out of China into Vietnam, fueled by high labour costs and concern over the current trade tensions with the USA, and also the new investment arising from companies wishing to take advantage of the opportunities created by the CPTPP and expected ratification of the EU Vietnam FTA.
However, Vietnam is expected to start shifting away from exporting low tech products to more complex high tech goods on the back of more diversified input sources made possible by the larger trade networks and cheaper imports from, partner countries, which will help drive Vietnam’s competitiveness[2]
The Government continues to strive to improve Vietnam’s business climate and issued a new resolution to this end further demonstrating their determination to improving the ranking in the World Bank’s Ease of Doing Business. Specific targets include: Starting a business, payment of taxes and social insurance (5 and 10 notches respectively) protection of minority investors (5 notches) registering property (5-8 notches). However this would seem to be quite ambitious when in 2018 Vietnam dropped 1 place in the overall rankings to 69 out of 190 countries.
In spite of the challenges the economic forecasts, the will of the Government and the new FTA’s certainly bring high hopes for investors in 2019.
Kenneth M Atkinson
[1] Vietnam Investment Review December 31st 2018.
[2] Focus Economics Interview with Lindsey Rice VIR December 31st 2018.
