Standard Chartered Bank has forecast Vietnam’s economy to grow at a steady 6.9 per cent in 2019, as the focus shifts to sustainable growth and support comes from FDI-driven manufacturing and stronger domestic activity.

The forecast was announced at Standard Chartered’s Global Research Briefing held on January 16 in Ho Chi Minh City, attended by senior representatives from over 120 local and foreign corporate clients. The annual event discussed Standard Chartered’s recently published Global Focus - Economic Outlook 2019 report, entitled “Fighting the Current”, and its latest Global Research report on Vietnam, entitled “Vietnam in 2019 - Steady and Sustainable Growth”.

“Most macroeconomic indicators improved in 2018, interest and FX rates were kept stable despite the US Fed’s hike in interest rates and US-China tensions, while NPLs [non-performing loans] were well-managed below 3 per cent,” said Mr. Nirukt Sapru, CEO Vietnam and ASEAN and South Asia Cluster Markets at Standard Chartered Bank. 

“This has helped minimize market volatility, increase Vietnam’s export competitiveness relative to other ASEAN economies, attract FDI, and create public confidence in the SBV’s [State Bank of Vietnam] management capabilities and policies. We believe that Vietnam’s economy will remain one of the fastest growing in Asia and likely the fastest-growing ASEAN economy in 2019.” 

“Vietnam recorded a ten-year high GDP growth rate of 7.1 per cent in 2018, in line with our forecast,” said Mr. Chidu Narayanan, Economist, Asia, at Standard Chartered Bank. “2018 was the first year since the global financial crisis that second quarter growth was slower than first quarter growth, and third quarter growth was slower than second quarter growth, and we believe this is a sign of a focus on sustainable growth over the medium term. We remain positive on Vietnam’s medium-term growth on strong manufacturing activity, as FDI inflows to electronics manufacturing remain strong.”

The manufacturing sector has expanded in the double digits for most of the past four years and this pace is likely to continue in 2019, though mildly lower than in 2018 due to the high base and uncertain external environment. 

Still-strong FDI inflows to manufacturing will likely support robust manufacturing output. Standard Chartered’s economists forecast FDI inflows to stay strong in 2019, at close to $15 billion, and FDI inflows to the manufacturing sector, particularly electronics manufacturing, to remain high in the medium term.

The study pointed out that construction activity moderated through 2018, growing 8.9 per cent in the full year, and construction growth, particularly in the real estate sector, will continue to moderate in 2019 but expand at a still-strong 7.5 per cent. Slower growth in the construction sector, which makes up close to 5 per cent of the economy, is likely to be offset by faster agriculture growth, which accounts for 12 per cent of the economy. Agriculture expanded 2.9 per cent in 2018 - the fastest pace for six years - and is likely to continue its recovery in 2019.

Standard Chartered Bank anticipates that the SBV is likely to remain accommodative in the near term to support growth, even as inflation edges higher. It expects steady policy rates in 2019 and a mild appreciation of the Vietnam dong (VND), but sees a risk of policy tightening in the second half of 2019 as inflation rises.