HCM City (VNA) - Standard Chartered Bank expects Vietnam’s growth toslow to a multi-year low of 3 percent this year on soft external demand, withexternal headwinds set to offset domestic outperformance.

The forecast is in the bank’s recently published research report for the thirdquarter.

“Growth is likely to rebound in the second half of the year (H2) driven by thestrength of the domestic economy; global headwinds are likely to partiallyoffset this. Vietnam’s dependence on the global economy is the second-highestin ASEAN after Singapore; its trade-to-GDP ratio of 198 percent is among Asia’shighest, driven by electronics exports. We expect 3 percent growth in Vietnamin 2020; further monetary and fiscal support in H2 could push growth closer tothe Government’s target of 4-5 percent,” said Chidu Narayanan, economist forAsia, Standard Chartered Bank.

According to the latest macro-economic report, manufacturing and servicessectors are likely to recover and be the main growth driver in the second halfof the year. The manufacturing sector growth is estimated at roughly 1.5 percentin 2020, with its contribution to growth down 1.8 percentage points. Theservices sector’s contribution to growth is likely to fall to 0.5 percentagepoints from 2.8 percentage points in 2019.

Construction activity is expected to decline on subdued sentiment and decliningforeign direct investment (FDI). However, public infrastructure investment islikely to be stronger than in the past 18 months, driven by Governmentstimulus. A slowdown in tourism and related activities is likely to weigh onconsumption, which is projected to pick up in H2 following the reopening of theeconomy but to remain below 2019 levels.

Standard Chartered’s economists anticipate Vietnam’s trade to pick up in H2 asglobal demand recovers, but a recovery to pre-COVID levels is unlikely. Demandfrom China should support a pick-up in both exports and imports near-term;however, subdued global demand is likely to impact trade growth. The bankexpects trade balance to remain in surplus this year as lower imports offsetsoft exports.

The study forecasts FDI inflows to decline this year on heightened uncertaintyand depressed investment sentiment globally, totalling 13 billion USD.Government measures should support FDI inflows in H2.

In addition, the sustained relocation of low-tech manufacturing to Vietnam amidgeopolitical tensions should partly offset subdued sentiment, supporting FDIinflows./.