Mr. Ngo Dang Khoa - Country Director of HSBC Vietnam Capital and Capital Market Division has just made some comments on Vietnam's economic situation, monetary policy, inflationary pressure in 2019 and expectations in 2020.
According to Mr. Ngo Dang Khoa, Vietnam has had a relatively successful 2019 in terms of economic stability when sustaining sustainable growth in the context of global trade decline and macro risks arising and increasing in Vietnam throughout the year. Unlike many other Asian economies which are facing challenges to maintain growth and overcome risks, Vietnam achieved an impressive growth rate of 7% in the third quarter of 2019, more importantly, growth was maintained mainly by the manufacturing and retail sector.
The strong growth of manufacturing was the development of commercial pulling power. Specifically, the first 11 months of 2019 witnessed a record trade surplus with a trade surplus of 11.1 billion USD in May, especially thanks to contributions from the field of phones and components. Vietnam's exports, though down slightly from the previous year, still reach about 8% over the same period, as of November this year, in the context of the trade war creating global economic instability. This is impressive growth compared to other countries in the region.
In addition, retail is expected to exceed the level of 2018, an increase of 12.6% over the same period as of November. Specifically, transportation, beverages, and food, clothing are all developing strongly. We expect the growth rate to be sustained in the context of FDI inflows and continuing to pour into the economy.
Regarding FDI, we have seen capital flows shifting to Vietnam, strengthening the position of the manufacturing industry. In the first three quarters of the year, newly registered capital flowed into manufacturing, particularly electronics. Meanwhile, the highest implemented capital in recent years, reached US $ 17.6 billion, up 6.8% compared to the same period last year.
Regarding the management of monetary policy, the leader of HSBC Vietnam commented that the State Bank (SBV) had a successful year when using reasonable and flexible policies to stabilize exchange rates and curb inflation to promote macroeconomic growth. During the year, regulators actively used a range of money market instruments such as lowering operating rates, lowering interest rates via bills / open market, lowering buying rates in parallel with the gradual adjustment of the central exchange rate in accordance with market movements.
The Dong continues to be among the most stable currencies in the region despite geopolitical uncertainty and domestic and foreign economic events. The USD / VND exchange rate almost remained stable throughout most months of 2019 and even the VND appreciated against the greenback when the SBV proactively lowered buying prices at the end of November. USD / VND price in the interbank market during the year only fluctuated in a relatively narrow band and fluctuated around the buying rate of the SBV at 23,200 and then 23,175 when the State Bank lowered the USD buying price. Since then, the SBV has been able to buy large amounts of foreign currencies, increasing its foreign exchange reserves to a record high ever.
Notably, in the context of the global market witnessed many fluctuations, especially the US-China trade war with many unpredictable developments, the Chinese Yuan (CNY) depreciated to the lowest level over the past 11 years, while the Dong maintained a stable trend. This trend is even more evident when China is one of the three largest trading partners in Vietnam.
Inflationary pressure was controlled with an average of 2.6% as of November, down from 3.5% in 2018 and much lower than the target of "less than 4%" set by the SBV from the beginning of the year.
Besides, the risk of slowing down the growth of regional economies as well as key trade partners of Vietnam such as mainland China, the US, and the EU. These markets account for half of Vietnam's total export volume, so exports will be severely affected if there is a decline in demand, thus affecting the overall growth of the country. With inflation, although in a promising environment of falling oil prices, inflation can be controlled, however, according to Ngo Dang Khoa, in the last months of the year, the CPI showed signs of rapid increase due to rising food prices affected by the African swine cholera, which is also an observable signal for the following year.
The representative of HSBC Vietnam said that one of the biggest challenges of the Vietnamese economy is the cost of debt repayment when Vietnam is no longer among the countries entitled to preferential loans. Meanwhile, we still need to balance management to reduce debt and the need to invest in infrastructure to realize economic potentials. Another factor to note is that Vietnam is an economy highly dependent on trade and any decline in demand has an impact on growth.
In that context, Vietnam has to consider the fact that its trading partners' economies will slightly reduce growth in 2020. And Mr. Khoa said that in order to maintain growth next year, Vietnam will need more reforms, and develop the domestic debt capital market. Currently, Vietnam's capital market is still quite far behind regional countries, the government bond market is the smallest scale in Southeast Asia, there is still room for development if we have and properly implement medium- and long-term plans.
Entering 2020, according to Mr. Ngo Dang Khoa, Vietnam has a basis to expect the exchange rate to continue to be operated under a flexible mechanism. Notably, with the record high foreign exchange reserves, the SBV has enough tools and resources to manage the exchange rate in a stable manner, meeting the market supply and demand. However, there are still challenges to be observed and monitored such as instability when the global economy shows signs of slowing down, the trade war and Brexit have not ended, 2020 is the year for the election of the President of the United States, ...
However, the recent fact that Vietnam has been put on the watch list of US exchange rate manipulation is also a worrying signal. Demand for imported goods from Vietnam next year may also be affected by the impact of the decline in global demand, so export revenue may not be as positive as this year. The exchange rate trend continues to be an unpredictable variable in the context of the geopolitical situation in the world constantly moving. The SBV will continue to coordinate with the executive agency of the market management policy in a flexible and proactive manner to avoid creating exchange rates and interest shocks. And representative of HSBC said that the economy next year is likely to face more difficulties, leading to problems in the direction of the exchange rate facing many challenges.
On the business side, especially for businesses with import and export factors, businesses with foreign loans in foreign currencies, according to Mr. Ngo Dang Khoa, facing unpredictable fluctuations of exchange rates, businesses should be proactive in using exchange rate and interest rate hedge tools, especially through currency derivative products such as forward contracts, interest rate swap contracts, etc. to ensure proactive in cash flow planning and profit balancing.
Vietnam's personal consumption accounted for 75% of GDP growth in the last five years, second only to the Philippines in terms of the proportion of GDP. The economy also benefits from the transfer of labor from agriculture into highly skilled industries. Vietnam's economy is gradually shifting to a consumer-focused economy, the consumer confidence index is also among the highest in the world due to positive prospects for career and economic growth. The middle class is also on the rise. These things are bringing a positive position for Vietnam to be able to take advantage of its competitive advantages.
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