RMIT Vietnam NewsQ&A: Vietnam’s economic outlook in 2018

Q&A: Vietnam’s economic outlook in 2018

Thursday, January 25, 2018 - 16:03

The new year has started with much optimism as Vietnam’s economy is forecasted to grow at a very respectable 6.5 per cent in 2018.

Today we sit down with Professor Christophe Schinckus from RMIT Vietnam’s School of Business & Management to discuss the key drivers of this growth, and some of the areas that may need more attention as the country continues through 2018 and beyond.

Professor Christophe Schinckus teaches in the School of Business & Management.

Professor Schinckus, the Asian Development Bank forecasts Vietnam's economy to grow at 6.5 per cent this year. What are some of the key drivers of this growth, and do you see this growth continuing?

Vietnam is one of Asia’s best performing economies. Everything suggests that this situation will continue for a couple of years due to the combination of several elements.

The current demographic configuration of Vietnam can partly explain this good economic situation. Approximately 70 per cent of the population is of working age, and with a [high rate of] economic growth, people have many more job opportunities, which implies low unemployment and robust domestic demand. Strong demand guarantees a high level of economic activity in the domestic market. This situation can be combined with a strong manufacturing sector supported by a continued inflow of foreign direct investments.

Tourism is playing a growing role in the economic health of the country, with the tourism sector's direct contribution to GDP growing to 8-8.2 per cent in 2018, compared with 7.5 per cent in 2017. Aware of these opportunities, the Vietnamese government explicitly plans to attract more than 15 million visitors in 2018. In terms of international trade, the demand in the China and US is strong and is expected to stay strong in 2018. This ensures Vietnam a good level of exports which is a driver of economic growth.

What are areas that the economy has to improve on?

When a country has high economic growth, it is important to grow well.

Generally speaking, I would mention three challenges that Vietnam might have to face.

Vietnam has to keep an eye on the inflationary trend observed in the country. Actually the country has a higher inflation rate than its major trading partners. Such a difference generates a situation in which outputs in Vietnam are more expensive than the ones produced by its trading partners. Therefore, imports for domestic consumption are cheaper but the competitiveness of exporters can decrease.

With a high proportion of the population working, there is a need for fiscal consolidation in the country. Fiscal debt has grown three times faster than the real GDP during the last five years.

Finally, Vietnam must be careful not to be the victim of its own success. If the private sector continues to be buoyed by strong domestic demand in combination with the important increase in credit, the banking sector might be at risk in the medium term if sectoral reforms are not initiated.

What are some international or national trends or issues that could potentially impact the country this year?

Many things can be evoked here. I will focus on only one. Vietnam is in a very active period in terms of economic reforms. A cautious plan of economic liberalisation is under way and, in this context, the government plans to improve the privatisation of state-owned enterprises. This transition is always fascinating and challenging because it also requires institutional changes in line with the ability to attract (and keep) private investors. That will probably be an interesting topic to follow in Vietnam in 2018.

How does the country's economic outlook affect opportunities for finance graduates? Where are the opportunities in Vietnam, in the region and around the world?

Vietnam is in a very important transition period, and finance graduates who would like to work in Vietnam need to be intellectually flexible, ready to understand that finance in an emerging economy might be quite different than the one they studied in class. We, of course, stress this point in our finance teaching at RMIT Vietnam.

There are many opportunities to work in finance in the country or in the region. Because the economic growth is important in South-East Asia, there is a huge demand for the “financialisation” of society. Much remains to be done in terms of sophistication of financial services to support economic activities and credit development. Such context offers a perfect environment and many opportunities for finance graduates to find a job in line with their passion.

Story: Howie Phung