Restricting trade with China probably caused Vietnam's economic growth to fall by 0.6-0.8%

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The driving force for growth in 2020 will mainly come from the FDI sector. Photo: H. Anh

FDI - the main driver of economic growth

According to the annual Vietnam Economic Assessment Report 2019 named "Improving labor productivity in the digital economy context" recentlypublished by the NEU, 2020’s GDP growth target set by Government was 6.8%. Forecasts of international organizations such as the IMF and World Bankwere more cautious, at 6.5-6.6%. In 2020, the inflation index targeted by the Government and forecasted by organizationswasin the range of 4.0-4.5%.

According to experts of the NEU, it is undeniable that Vietnam still has some opportunities and advantages, thereby ensuring some basic motivation for its economic growth.

Firstly, Vietnam is an FDI attraction in the region, the growth engine of the economy comes from the external sector.

It is expected that Vietnam will continue to be a strong FDI attraction in the region. Given the growing role of the FDI sector, the growth momentum of the economy will be largely from this sector, accompanied by an improved trade balance compared to 2019.

Second, benefits of the new generation FTAs can increase the quality of FDI, making a greater contribution to growth. The new generation FTAs bring positive benefits to the Vietnamese economy and enterprises.

In addition to direct benefits from capital flows and exports, opportunities for improving the linkage between domestic and FDI enterprises could be increased significantly. FDI enterprises will proactively open a door to welcome domestic parts and accessories manufacturers to enjoy preferential FTA rates.

The opening of this door is not only an invitationfor domestic enterprises to join orders, but also an advice and support for technology, training of human resources, or sharing of management experience.

However, this report emphasized the economy has faced many challenges from the outside as well as internal problems, thereby affecting the prospects for the economic growth in 2020, Accordingly, it is difficult to achieve the growth target of 6.8%.

The Covid-19 pandemic seriously affected the economy

Among the six challenges mentioned by experts of the NEU, notably three challenges: Firstly, the economy will be seriously affected by the Covid-19 pandemic. Accordingly, the Covid-19 pandemic will have a strong and long-lasting impact on the economy. The economy will decline rapidly in both total supply and demand.

“The impact of the Covid-19 pandemic on the economy will be further encouraged because Vietnam has a large degree of economic openness, the external sector was the driving force for the growth in the last year,”the report stated.

Additionally, the increase in costs to prevent the pandemic will affect the budget, while the state of budget is difficult, revenue is reduced due to economic recession; budget deficits increase, and other resources to support economic growth are narrowed significantly.

“Restricting trade with China alone has dragged down Vietnam's economic growth from 0.6 to 0.8%. If multi-dimensional effects from other sectors are included, the economy will be undoubtedly more heavily affected,”the report stated.

Secondly, the world economy is in decline and global trade tensions increase risks to international trade. Accordingly, with external shocks and limited resilience, import and export and Vietnam's economic growth may be negatively affected.

For example, the US-China trade war is likely to happen unpredictably, leading to big risks that Vietnamese businesses face when exporting goods to the US. In addition, the risk of disrupting global production chains may negatively affect Vietnam's investment and production activities.

Thirdly, if Vietnam participates in the Belt and Road Initiative (BRI) strategy, it may lead to pressure on increasing public debt and inefficient projects. The report emphasized that there are many points to consider carefully about the potential benefits from actively participating in the BRI initiative and requiring improved governance to avoid "debt trap" or inefficient projects.