BizLIVE - Moody's predicts Vietnam's real GDP growth at 6.7% this year and 6.5% next year.
Vietnam's Robust Growth Trends Likely to Continue: Moody's
A Samsung factory in Thai Nguyen province, northern Vietnam. Photo: Reuters
Moody's Investors Service has said in its latest report that the Vietnam's B1 positive credit profile reflects the economy's robust growth trends. These trends are spurred in turn by the country's increasing competitiveness and a rapid economic transition away from traditional sectors such as agriculture into manufacturing.
The country has also climbed up the manufacturing value chain within a short span of time, moving away from the export of labor-intensive goods, such as textiles and garments, to higher value-added electronic products. These trends have played an important role in determining the extent and pace of economic acceleration, it said.
Moody's expects that strong foreign direct investment (FDI) inflows will continue to diversify Vietnam's economy and strengthen growth compared with similarly rated peers; thereby supporting a stabilization in the government's debt burden.
Vietnam's real GDP growth accelerated to 6.8% year-on-year in 2017, topping a 6.2% expansion in 2016.
“We expect real GDP growth to remain robust, averaging 6.7% in 2018, nearly twice as high as the average for B-rated sovereigns of 3.6%, and supported by domestic consumption and by strong investment growth on the back of public sector infrastructure development spending,” the credit rating agency said in the report.
The growth rate is expected to moderate slightly to 6.5% in 2019 owing to a more modest pace of export growth.
Rapid domestic credit growth has in part financed strong domestic demand, and continues to significantly outpace nominal GDP growth. Moody's points out that while rapid credit growth presents risks to the banking system, it could also represent a degree of financial deepening.
High government debt levels and widening deficits act as a credit constraint, and as Vietnam graduates from the World Bank's International Development Association program, its debt affordability may erode. Nonetheless, a continued shift away from foreign currency financing indicates a deepening in domestic financial markets, which will reduce refinancing risks.
Moody’s recognized that the drive to privatize state-owned enterprises (SOEs) remains a key policy priority, and has gathered momentum with successful stake sales in large SOEs.