Standard Chartered Bank forecasts Vietnam's FDI inflows in 2020 will fall below USD 10 billion

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Growth in manufacturing is forecasted to be slow due to the decline global demand. Photo: Internet.

Chidu Narayanan, Economist for Asia, Standard Chartered Bank, said Vietnam is now more integrated with the global economy via its booming manufacturing sector. Its trade-to-GDP ratio has risen to 300%, among the highest in Asia, signifying its high dependence on global demand. Lower global demand due to likely recessions in the US, the euro area and other G10 economies will affect Vietnam’s growth in 2020.

Standard Chartered Bank has also forecast that the growth will rebound to 6.5% in 2021 given an expected global demand recovery and the low base from 2020.

According to the report, Vietnam’s manufacturing growth is likely to decline sharply on slowing global demand, with the growth rate expected at close to 3% compared to about 11% in 2019. The sector, which accounts for roughly 19% 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% of GDP, is forecast to slow to approximately 4% in 2020 from 7.3% in 2019, adding 1 percentage point less to growth. Softer manufacturing growth, slowing domestic activity and social distancing measures will affect consumption.

Tourism has declined sharply amid Covid-19-related restrictions on cross-border travel, and Standard Chartered Bank expects a sharp decline of about 60% in tourist arrivals in 2020. Agriculture growth is likely to remain steady at 4% in 2020 due to the low growth in 2019.

The study forecasts Vietnam's FDI inflows in 2020 will fall to below US$10 billion this year, with downside risks if coronavirus concerns continue in the second half of the year. Construction activity is likely to decline due to subdued sentiment and declining FDI investment. Export growth is predicted to slow sharply given lower global demand while import growth will also moderate with slower growth, keeping the trade balance in surplus in 2020.

Standard Chartered economists also said the VND will continue to decline in the short term amid the sharp fall in global demand, tourism and FDI inflows and the weakness in other regional currencies. Việt Nam’s external balances are likely to remain strong and VND is expected to have positive developments in the middle term,. According to Standard Chartered Bank's forecast, USD-VNĐ is projected at 23,700 at mid-2020 and 23,200 at end-2020.