Vietnam will be one of the few global economies to grow this year forecast economists from trade credit insurer Atradius.
The resilience of the emerging economy of Vietnam provides a strong appeal to UK exporters and has earned it a place as a key trading partner. With a track record of 25 years of consistent growth, Vietnam has a population of more than 90 million making it the third-largest population in South East Asia. Half of its population are under 30 and it also has one of the fastest-growing middle classes in the region.
While the impact of the coronavirus pandemic has been felt in Vietnam with resulting comprehensive containment measures, Atradius reports that despite the impacts of the virus Vietnam is one of the few economies in the world not facing a contraction this year. In its recent Vietnam Country Report Atradius forecasts economic growth will slow down to 2.3% in 2020, following annual GDP growth rates of about 7% over the past five years. Furthermore, Atradius forecasts investments and private consumption growth to slow this year to 0.4% and 4% respectively. Due to the global economic slowdown, exports are forecast to contract 5.5% in 2020 after robust annual growth rates in 2019 and 2018.
Atradius forecasts the Vietnamese economy will rebound by more than 7% in 2021 with exports and investments increasing at double-digit rates. However, the potential for another longer-lasting surge of the pandemic and an ongoing global economic slump poses a strong risk to this outlook, particularly as Vietnam’s open economy is heavily dependent on external trade. Additional risks include rising protectionism, such as another escalation of the Sino-US trade war and potential US protectionist measures.
According to the Report, the market’s prospects over both the medium and the long term are generally good. With relatively low production costs and as the main low-cost regional alternative to China, Vietnam has already benefited from a shift in export-orientated manufacturing, boosted in 2019 as a result of trade diversification triggered by trade conflict. Atradius reports that the trend to move production away from China could be accelerated by the coronavirus-related supply chain disruptions in H1 of 2020 that affected many companies around the world.
Atradius’ industries performance forecast is also relatively positive for Vietnam. Atradius has rated the chemicals/pharmaceuticals, consumer durables, electronics/ICT, financial services, food, machines/engineering and paper industries with a ‘good’ performance outlook while the agriculture, metals, services and textiles industries have a ‘fair’ outlook. However, at the other end of the spectrum, the automotive/transport, construction, construction materials and the steel industries have a ‘poor’ performance outlook.
Tanya Giles, South West Regional Manager at Atradius, commented: “Over recent years, Vietnam has become an increasingly attractive destination for UK trade. With a long-term growth potential boosted by a resilient economy, low production costs and burgeoning middle-class population, Vietnam offers increasing opportunities for exporters. However, it is important to remember that no market is immune from risk and therefore a comprehensive, well-prepared trade strategy is essential before embarking on any new trade relationship. Pivotal to this is solid information on your prospective trade partner and their payment practices alongside real-time monitoring of the risks whether these be economic, political or arising from the global pandemic. Only with the right preparation and protection can businesses be truly ready to maximise the opportunities that new markets bring and reap the rewards.”