Fitch: The new outbreak has not affected its 2021 growth forecast

Fitch Ratings’ head of Vietnam analysis forecasts that GDP growth in 2021 can still grow by 7.5%, despite a new outbreak.

Early spring of Tan Suu, Ms. Sagarika Chandra, Head of Vietnam Analysis at Fitch Ratings, shared with VnExpress on variables affecting Vietnam’s credit outlook in 2021.

– What does Fitch forecasts about Vietnam’s economy in 2021, especially in the context that a new epidemic is taking place in some localities, which may affect some areas of the economy?

– Vietnam has well controlled the Covid-19 pandemic, so we think the economy will recover when domestic demand grows again. Fitch predicts that by 2021, your GDP will be able to grow 7.5%, which is significantly higher than the level of 2.91% of GDP in 2020.

Of course, the 7.5% growth rate reflects the fact that Vietnam’s economy has recovered from a low base.

Ms. Sagarika Chandra – Head of Vietnam Analysis of Fitch Ratings. Image: Fitch.

In addition, we think there are other factors supporting Vietnam’s economic growth even before the pandemic, including foreign direct capital (FDI) – the region that will play an important role in helping economic growth. Vietnam economy recovered. FDI into Vietnam will remain high, and according to our current forecasts, net FDI will be at 4% of GDP in 2021 and 2022.

Regarding average inflation in 2021 and 2022, we forecast at 3.5%.

It should be added that, even after the new developments in the epidemic in Hai Duong and some other locations in Vietnam, Fitch still maintains the above growth forecast. The reason is that we look at Vietnam’s effective anti-epidemic process that has kept the number of infections low, based on officially released data.

– From a credit rating agency’s perspective, what are the major challenges facing Vietnam’s economy in 2021?

– Although economic growth is forecasted to recover in 2021 and 2022, Fitch believes that Vietnam’s economy will still be vulnerable to external impacts due to high openness. Vietnam will still face many risks arising from the group of state-owned enterprises and the structural weakness of the banking industry.

Factors that could help Vietnam have a higher credit rating may be macroeconomic stability demonstrated by its high policy flexibility, including policy related to monetary flexibility. and maintaining foreign exchange reserves or improving public finances, represented by smaller budget deficits or generally reduced government debt or risks with national balance sheets that originate in the banking sector. reduction.

In other words, the factors that may cause Vietnam to lower credit rating include: policy changes causing macro instability or increasing macro imbalance factors or crystallization of contingent debt or foreign currency reserves decline, as foreign investment decreases to a sufficient size to destabilize the economy.

Hanoi's streets were deserted during the nationwide anti-epidemic gap in April 2020.  Photo: Giang Huy.

Hanoi’s streets were deserted during the nationwide anti-epidemic gap in April 2020. Image: Giang Huy.

– In 2020, the banking industry announced high profit growth. At the same time, there are also differences compared to previous years: credit growth is not high, the number of businesses goes bankrupt, and the number of employees being laid off is much. So what do these two contradictory pictures have on Vietnam’s economy and credit rating?

– Compared to other countries in the region, Vietnam has grown better. Vietnam’s economy grew by 2.91% in 2020 while many other Southeast Asian economies even declined sharply. As such, Vietnam has done better than many other countries in the region.

In 2020, we have seen many businesses go bankrupt, workers lose their jobs, but eventually the economy can still grow, which is due to the fact that the parties are still solving problems related to the economy. Covid-19 translation.

Last year, Fitch adjusted Vietnam’s credit outlook from “positive” to “stable”. When adjusting our credit outlook, we have taken into account the effects of the Covid-19 epidemic on the economy and made this decision. However, compared to countries with the same BB rating as the present, Vietnam’s important economic indicators are still better than other countries.

– In the past year around the world, investment cash flow has poured heavily into stocks, real estate, Bitcoin, pushing the prices of these assets up rapidly. In this context, what risks can Vietnam’s economy face?

– Up to now, the above factors of asset price volatility have not affected much to the macroeconomic stability of Vietnam, Fitch realized that inflation is still well controlled, the economy continues to grow and is expected to newspaper better than last year. The movement of external capital flows in general has not created any major risks to the stability of Vietnam’s macro-economy.

If there are cases where we become more pessimistic about Vietnam’s credit rating, it will come from one of the factors such as macroeconomic instability or poor policy management. However, in the current case of Vietnam, we do not see that this will happen.

– In 2020, the Vietnamese corporate bond market has grown impressively, even very “hot”. So, what effects do these developments affect to the credibility of the economy?

– The country’s credit rating is not really influenced by the corporate bond market, but according to our assessment, is calculated based on strong, sustainable economic growth and a policy focused on assurance. macroeconomic stability and fiscal improvement.

Domestic financial situation will help support economic growth, but that is not the only determinant. Vietnam’s credit rating is supported by strong, stable, and sustainable FDI inflows.

– The US Treasury Department has “labeled” Vietnam as a currency manipulator, but so far it has not taken any specific action. So does this affect the credit rating that Fitch is giving Vietnam?

– The fact that Vietnam is “labeled” currency manipulation makes economic relations between Vietnam and the US more complicated, but we believe that the two sides will have talks in the coming months to try relieves stress. In the meantime, we will continue to monitor developments to gauge whether it may affect credit rating.

In recent years, there has been a tendency for many foreign enterprises to shift production from China to some Southeast Asian countries, especially Vietnam. What will this trend look like under the new US administration?

– We believe that Vietnam and neighboring Southeast Asian countries will continue to benefit from the inflow of foreign direct investment, including the trend of shifting production away from China to avoid high taxes.

It is not yet clear how the relationship between the US and China will evolve, but it is likely that the US side will have a predictable foreign policy strategy and a multilateral approach to economic relations and economic relations. This is good for the area.

Dieu Thanh (perform)


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