Economic Sector

Last updated: Monday, April 22, 2019


ICAEW Forecasts Vietnam’s GDP Growth at 6.7%

Posted: Wednesday, September 26, 2018

Economic growth across the South-East Asia (SEA) region is expected to cool in H2 2018 into 2019 according to ICAEW’s latest Economic Insight: South-East Asia report. Among SEA economies, Vietnam is expected to continue to outperform the region with the economy forecast to grow by 6.7% in 2018 and 6.3% in 2019.

Meanwhile, Singapore is expected to see a more discernible slowdown, reflecting its heavy dependence on exports (around 174% of GDP). Growth in the region is expected to ease to 5.1% this year from 5.2% in 2017, with growth moderating further in 2019 to 4.8% as moderating Chinese import demand and escalating US-China trade tensions dampen exports and business investment.

Economic growth edged lower in Q2 across most of the South-East Asia economies, with average GDP growth for the region easing to 5.2% year-on-year, down from 5.4% in Q1. In addition, while recent regional trade data suggests some resilience in external demand, forward indicators point to softer export momentum in the coming months, with the aggregate measure of South-East Asia PMIs moderated to 50.9 in July, from 51.1 in June.

Sian Fenner, ICAEW Economic Advisor & Oxford Economics Lead Asia Economist, said, “Amid increasing global headwinds, including escalating US-China trade tensions, and the added pressures of a stronger US dollar and rising US interest rates, we expect economic growth across the region to cool further in the second half of 2018 through to 2019. This is against the backdrop of cooling Chinese import demand and increased trade protectionism.”

Challenging export environment amid cooling Chinese import demand and rising protectionism
New tariffs set by both the US and China indicate an escalation in US-China trade tensions, which is forecast to worsen with a 25% and 10% tariff implemented on a cumulative $150 billion of imports from China, and China retaliating in kind. While the US will remain focused on trade with China, higher US tariffs on Chinese imports will indirectly impact the region.

Mark Billington, ICAEW Regional Director, South-East Asia, said, “Many of the region’s economies are small, open and heavily dependent on exports, with a high level of exports to China. Added to this is the high import content of many Chinese exports, which means that some economies such as Malaysia and Singapore indirectly export a large volume of their exports to the US via China. In a challenging export environment and with rising protectionism sentiments, we expect overall growth momentum in the region to ease in H2 2018 into 2019.”

FX resilience amid emerging market currency weakness
An escalation in the US-China trade tensions, a slide in CNY, and more recently the Turkish lira crisis has led to most emerging market (EM) currencies weakening against the US$ this year. However, solid macroeconomic fundamentals have helped Asian currencies to remain robust and weakened moderately.

Looking ahead, EM currencies will likely see more volatility to come given the expectation of further near-term strength in the US dollar, rising US interest rates and the eventual tightening of monetary conditions globally. Oil price movements, the evolving US trade policies, as well as the unfolding of major geopolitical events (such as Iran sanctions, political uncertainty in Europe, etc) will only add to this volatility.

Conversely, most Asian currencies are likely to remain relatively robust compared with other EM currencies. There are unlikely to be any major moves in Asian currencies, and economies with strong fundamentals are expected to see their currencies appreciate modestly against the US dollar by end-2018.


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