The latest report released by Crédito y Caución warns of increased risks of deterioration in Vietnam stemming from the trade war between the United States and China and the slowdown in the Asian giant. " As an open economy that largely depends on foreign trade, increased protectionism or a decrease in world trade could have significant ripple effects ," the report states.
The credit insurer expects economic growth to remain structurally high, above 6%, between 2019 and 2020, driven by the evolution of domestic demand and exports. Strong export growth is expected, thanks to the relocation of Chinese export industries to the country, especially in the garment sector. However, the business environment in Vietnam is still hampered by institutional weaknesses, infrastructure deficiencies, and the high participation of financially inefficient state-owned enterprises in the country's economy. Among the strengths of this economy are its openness, the diversification of its foreign trade, and the limited presence of basic products in its exports.
High GDP growth and the state's creation of a "bad bank" have reduced default rates, but the high dependence of companies on bank financing has left outstanding loans at 130% of GDP. Although the financial sector is gaining strength through consolidation and foreign investment, it may have difficulty meeting the needs of the private sector in the coming years.
External debt, primarily long-term public debt, remains stable and well-funded. The Vietnamese currency is expected to gradually weaken against the dollar in 2019 due to rising inflation and monetary adjustments in North America. The report forecasts an increase in official interest rates to support the Vietnamese dong.
