A foreign company’s factory in HCM City. Standard Chartered Bank has forecast Việt Nam’s economic growth to fall to 3.3 per cent and FDI inflows to be below US$10 in 2020 due to the impacts of the COVID-19 pandemic. — Photo cafebiz.vn
HCM CITY — Standard Chartered Bank has forecast Việt Nam’s economic growth rate to slow down to 3.3 per cent in 2020.
In its recently published Global Focus – Economic Outlook report for Quarter 2, 2020, titled ‘Darkest before the dawn’, Chidu Narayanan, its senior economist for Asia, said: “Việt Nam is now more integrated with the global economy via its booming manufacturing sector; its trade-to-GDP ratio has risen to 300 per cent, among the highest in Asia, signifying its high dependence on global demand.
“Lower global demand amid likely recessions in the US, the euro area and other G10 economies will weigh on 2020 growth. We see growth rebounding to 6.5 per cent in 2021 given an expected demand recovery and the low base from 2020.”
Manufacturing growth is likely to decline sharply to 3 per cent compared to around 11 per cent in 2019.
The sector, which accounts for around 19 per cent of GDP and has contributed almost a third of GDP growth in recent years, is likely to be the primary transmission channel of external weakness and contribute 1.6 percentage points less to this year’s growth than in 2019.
The expected rebound in growth in China should support manufacturing activity in the second half of the year.
The services sector, which contributes close to 40 per cent of GDP, is forecast to see growth slow to 4 per cent in 2020 from 7.3 per cent in 2019, adding 1 percentage point less to growth.
Softer manufacturing growth, slowing domestic activity and social distancing measures (including restrictions on large gatherings) are likely to weigh on consumption.
Tourism has declined substantially amid COVID-19-related restrictions on cross-border travel, and the bank expects a decline of 60 per cent in tourist arrivals in 2020.
Agricultural growth is likely to remain steady at close to 4 per cent in 2020.
FDI inflows will plunge to below US$10 billion this year, with downside risks if virus worries continue in the second half of the year.
Construction activity is likely to decline on subdued sentiment and declining FDI investment. Export growth is likely to slow sharply given lower global demand while import growth will also likely moderate, ensuring there is a trade surplus.
There could be further đồng weakness in the near term given the sharp decline in external demand, slowing tourism receipts, weakness in other regional currencies, and lower FDI inflows.
The exchange rate is projected to be VNĐ23,700 to the dollar in mid-2020 and VNĐ23,200 by year-end.
The đồng is expected to be robust in the medium term since Việt Nam’s external balances are likely to remain strong. — VNS