Infrastructure and human capital bottlenecks are forecast to cap growth of the Vietnamese manufacturing sector in 2020. (Source: baoquangninh.vn)Hanoi (VNS/VNA) - Vietnam’sGDP growth would reach 6.8 percent from the 7.02 percent posted in 2019,mainly due to a slowdown in the industrial sector, analysts fromFitch Solutions forecast.
The growth of the industrialsector will likely continue to slow this year after easing to 7.3 percent inthe last quarter of 2019, from 10.4 percent in the third quarter.
“Transport and logisticalinfrastructure and human capital bottlenecks will continue to weigh on thesector's growth, which accounts for around 16.5 percent of the Vietnameseeconomy,” Fitch said.
The US-China trade war hasaccelerated a structural shift in low-end electronics and textilesmanufacturing out of China and into ASEAN, with Vietnam being a majorbeneficiary. However, the rushto set up operations and export out of Vietnam has putconsiderable stress on existing road and port infrastructure, resulting insevere congestion in and around major cities suchas HCM City and Hanoi, and also week-long delays at ports. Indeed,export growth has decelerated since September 2019 and this trend isexpected to persist over the coming months.
A shortage of qualified labour,as suggested by high year-on-year wage growth of between 12 percent and 18 percentacross the occupational skill levels, will also weigh on manufacturing growthby inhibiting the integration of better technology into work processes.
Vietnam’s manufacturingproduction growth slowed sharply to 6.5 percent year-on-year in November 2019,its lowest level since 2017, from 10.8 percent year-on-year in October 2019.
The agriculture sector willalso be under pressure in 2020 due to hydroelectric dam projects upstream ofthe Mekong River in Laos, as well as diseases such as African swine fever.
However, it is expected thatstronger growth in construction and services will partially offset theslowdown.
The construction of the North-South Highway, which began in September 2019 and is expected to be completed by 2021, will be a key project supportingthe construction sector.
Meanwhile, services growthwould be underpinned by four key sub-sectors, analysts said.
Firstly, a strong increase inreal wages, in part driven by skills shortages, would support a continued riseof Vietnam’s middle class.
This, together with the ongoingtrend of robust tourist arrivals, boded well for further strengthening inretail as well as hospitality services. Retail sales growth had beenrelatively stable above 10 percent over the past three years, growing by anaverage of 11.7 percent year-on-year.
Next, the influx of companies toVietnam to circumvent US tariffs on China would also support thegrowth of transport and warehousing services, especially with a shortageof such services likely to push up prices and profitability in thissub-sector.
Finally, despite a likely(slight) softening of economic growth in 2020, still-robust economic activitywould continue to support growth of financial services./.
VNA
