The World Bank has upped its 2018 growth forecast for Vietnam to 6.8 percent, but warned of trade war fallout.
The latest forecast is an increase of 0.3 percentage points from the one it made in April.
According to the World Bank’s East Asia and Pacific Economic Update October 2018 released Thursday, 2018 growth is expected to be robust in Thailand and Vietnam, before slowing in 2019 and 2020 as stronger domestic demand only partially offsets the moderation in net export growth.
The report forecasts that Vietnam’s growth will fall to 6.6 percent in 2019 and 6.5 percent in 2020.
It also warned Vietnam and other countries in the East Asia and Pacific of possible negative impacts from the rising trade tensions between the U.S. and China.
The U.S. has focused its recent tariff increases on trading partners with whom it has a sizeable bilateral trade deficit, the report noted.
There is a risk that if countries such as Indonesia, Thailand, and Vietnam supplant Chinese exports, their rising prominence in the U.S. trade profile might encourage U.S. policymakers to raise tariffs on imports from those countries as well, it added.
As Vietnam sources a relatively large share of its goods from China, it could face increasing competition in domestic markets from Chinese goods seeking alternative export destinations, the report said.
China was Vietnam’s largest import market with a value of $41.63 billion from January to August, accounting for over 27 percent of Vietnam’s total imports, according to Vietnam Customs.
The report also expressed concern over Vietnam’s inflation rate, which is edging up along with that of Myanmar and the Philippines.
Vietnam’s inflation in the first nine months this year was calculated at 3.57 percent. The target for the year is 4 percent.
The reason for the rise in Vietnam’s consumer price index this year is a surge in food, transportation and healthcare prices, the report said.
It also said that currency depreciation in Vietnam could put upward pressure on inflation as the domestic price of imports rises.
However, the World Bank report is optimistic about the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), saying it could generate a modest but significant decrease in Vietnam’s poverty rate.
By 2030, CPTPP membership is expected to enable more than 600,000 Vietnamese to rise above the poverty line, reducing the poverty rate by about 0.57 percentage points.
In the first nine months this year, Vietnam’s GDP grew by 6.98 percent, the highest nine-month growth rate since 2011.
In a report issued last month, the Asian Development Bank forecast Vietnam’s GDP to expand by 6.9 percent this year.
The economy grew by 6.81 percent last year, the highest rate in a decade.