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Vietnam Country Risk Report Q4 2018

Vietnam Country Risk Report Q4 2018

We maintain our forecast for Vietnam's real GDP growth to pick up slightly to 6.9% in 2018, from 6.8% in 2017, after the economy expanded by 7.1% y-o-y in H118. The robust growth momentum will continue to be underpinned by government efforts to liberalise trade and investment, as well as to boost the private sector's footprint. However, risks are weighted to the downside.

We expect the State Bank of Vietnam (SBV) to maintain its benchmark refinancing rate at 6.25% over the remainder of 2018. Strong economic growth momen-tum has negated pressure on the central bank for further monetary easing, while modest core inflation and a buildup of foreign reserves mean that the SBV is now able to remain accommodative for longer despite rising global interest rates.

We expect the Vietnamese dong to decline further against the US dollar over the coming months, but the weakness is likely to be moderate given that Vietnam continues to be an economic outperformer among its regional peers, while the SBV is able and willing to intervene in the forex market. Over the longer-term, we expect the dong to gradually weaken given higher structural inflation.

Although Vietnam continues to score highly in our Short-Term Political Risk Index for its policy continuity and policymaking processes, we believe that risks to social stability are increasingly weighted to the downside. Despite the crackdown on corruption over the past few quarters, public perception of the government appears to be worsening, and this is being reflected in the heightened frequency and intensity of online and street protests.Major Forecast Changes

We forecast Vietnam's budget deficit as a share of GDP to narrow to 4.6% in 2018, from 5.6% in 2017, as capital expenditure is likely to see subdued growth in 2018. The 20.1% y-o-y contraction in capital outlay in Q118 should likely be offset by back loading of spending over the coming months, but the ongoing anti-corruption drive is likely to weigh on the implementation of public projects and cap expenditure growth.

Key Risks



The potential for a renewed maritime dispute with China poses downside risks to Vietnam's otherwise stable short-term political outlook.

Should the Trump administration introduce fresh tariffs on Vietnamese imports in the US, this would pose a salient risk to Vietnam's export sector, and conse-quently our economic growth forecast, given the sector's strong orientation to the US economy.

Economic policy slippages (in which the government has a mediocre track record) could dent investor confidence, and result in a slowdown in foreign direct investment inflows and manufacturing growth.


Executive Summary
Core Views
Major Forecast Changes
Key Risks
Country Risk Summary
Economic Risk Index
Political Risk Index
SWOT
Economic – SWOT Analysis
Political – SWOT Analysis
Economic Outlook
Economic Growth Outlook
Vietnam's Economy To Continue Powering Ahead
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Outlook On External Position
TABLE: MAIN EXPORT AND IMPORT PARTNERS
TABLE: MAIN EXPORTS AND IMPORTS
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
Monetary Policy
State Bank Of Vietnam Likely To Maintain Neutral Stance
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
Vietnam's Anti-Corruption Drive To Weigh On Capex
Structural Fiscal Position
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES, 2016
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
Vietnam Country Risk Q4 2018ContentsCurrency Forecast
Vietnamese Dong To Remain Under Pressure But Excessive Weakness Unlikely
TABLE: CURRENCY FORECAST
10-Year Forecast
The Vietnamese Economy To 2027
A New Focus On Quality Growth
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Political Outlook
Domestic Politics
Downside Risks To Social Stability Rising
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Monopoly On Power Unsustainable
Global Macro Outlook
Fewer Negative Surprises, But Trade Risks Rising
TABLE: GLOBAL MACROECONOMIC FORECASTS
TABLE: DEVELOPED STATES – REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS – REAL GDP GROWTH, % y-o-y
Index Tables
TABLE: VIETNAM – MACROECONOMIC DATA AND FORECASTS

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