Fitch expects growth of 7.4% in Vietnam in 2022, 6.2% in 2023

02 Nov '22

2 min read

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Fitch Ratings recently affirmed Vietnam's long-term foreign currency issuer default rating (IDR) at 'BB' with a positive outlook. Fitch expects growth of 7.4 per cent this year, led by strong gains in the industry, construction and services, and partly from base effects, and forecasts a slowdown in economic growth of Vietnam to 6.2 per cent in 2023.

Key rating drivers are strong growth prospects, vulnerability to external shocks, greater exchange rate flexibility, a decline in foreign exchange reserves, upside inflationary pressures, contingent liability risks and weaker structural indicators.

The rating reflects the country’s strong medium-term growth prospects, lower government debt compared to peers and favourable external debt profile.

High foreign direct investment (FDI) in manufacturing should continue to support robust growth in the medium term, Fitch noted.

Downside risks remain, related to the economic implications of the Ukraine war and tighter global funding conditions, it said in a release.

Vietnam's high degree of trade openness leaves the economy vulnerable to external shocks. However, Fitch expects exports to keep performing well in the medium term, benefitting from Vietnam's cost competitiveness, trade diversion from China and implementation of key trade agreements.

Exports grew by 17 per cent year on year (YoY) in the first nine months of this year compared with 18 per cent YoY growth during the same period last year.

A strong US dollar has led to significant depreciation of the exchange rate. Fitch expects reserve coverage of current external payments to average about 2.7 months over 2022-2024.

Vietnam's external debt profile remains favourable, as its creditors are largely bilateral and multilateral. In addition, foreign investor holdings in the local currency government bond market are minimal, at 0.7 per cent of the stock at end-2021. Despite the fall in forex reserves, Vietnam will remain a net external creditor in 2022-2024, a strength compared to the 'BB' median, Fitch forecast.

Fitch believes inflationary pressures in Vietnam are on the upside, with headline inflation averaging 2.7 per cent in the first nine months this year, above the 1.8 per cent during the same period last year, although it is still below State bank of Vietnam’s target range of 4 per cent.

Fibre2Fashion News Desk (DS)

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