HCM City (VNS/VNA) - The Vietnamese economy is expected to grow at around 6.7 percentthis year, the fastest rate in South East Asia, according to the Institute ofChartered Accountants in England and Wales’ recent Economic Insight: South EastAsia report.

According to the report, Southeast Asian economiesexcept Vietnam have seen export drop in the second quarter of this yearcompared to the same period last year while Vietnam’s exports grew albeitslower than in 2018.

Its economy grew at 6.8 percent year-on-year in thefirst quarter driven by strong manufacturing, steady services and higheragricultural output.

However, its economic momentum is expected to trendlower due to reduced Chinese demand for goods and rising trade protectionism.

While the escalating US-China trade war could benefit Vietnamin the short term due to trade diversion, Vietnam still heavily relies onChina, with its exports to that country accounting for around 10 percent of GDPin 2017.

Foreign direct investment (FDI) and manufacturing areexpected to remain big drivers of economic growth. According to the ForeignInvestment Agency, FDI disbursed in the first two months of 2019 increased by9.8 percent year-on-year to around 2.6 billion USD. The manufacturing industryreceived the most attention from foreign investors.

Vietnam’s close proximity to China and favourablelabour conditions, including affordable wages, would ensure that FDI remainsstrong in the medium term, with Vietnam’s improving infrastructure, itsaccession to trade agreements and FDI attraction policies are also favourablefactors.

Domestic demand will remain strong in 2019-2020 withsteady household spending and inflation and rising incomes. Tourism is alsoexpected to remain strong.

Mark Billington, ICAEW's regional director, GreaterChina and South East Asia, said while Vietnam’s economy would grow despite thetrade war and other external factors that challenge export growth in theregion, measures are needed to ensure FDI inflows remain steady.

Structural reforms to improve firms’ ability to dobusiness and adequate education and training to boost production are vital, headded.

The report said Southeast Asian economic growth isexpected to be 4.8 percent this year, down from 5.3 percent in 2018.

In the first five months of this year, exportsincreased by 19.8 percent while imports increased by 23.6 percent, Dang VanThanh, Chairman of the Vietnam Association of Accountants and Auditors, said.

Vietnam faces several problems such as slowinstitutional transformation, low value addition in processing, low labourproductivity, and limitations in education.-VNS/VNA