Vietnam growth upbeat thanks to EU trade deal

According to Fitch Ratings, the signing of the free trade agreement between Vietnam and the European Union (EU) will help Vietnam enjoy many long-term macroeconomic benefits.

The agreement will boost foreign investment, productivity and export value, strengthening growth potential and external accounts.

Processing seafood for export. (Photo: Vu Sinh/VNA)

The EU-Vietnam trade agreement has been agreed after nearly three years of negotiations.

The agreement will eliminate virtually all tariff barriers over a 10-year transition period, with the majority of tariffs being eliminated upon entry into force.

The agreement also opens up many opportunities to receive investment from the EU in service sectors, including financial services.

Vietnam has benefited from external balances and relatively high real GDP growth rates. Vietnam’s average real GDP growth in 2010-2014 was 5.9% compared to the BB rating target of 4.5%.

Vietnam's current account surplus in 2014 was 4.5% of GDP compared to an average deficit of -1.3%.

The external account was strengthened by strong and steady FDI inflows, with net FDI totaling 3.9% of GDP, equivalent to US$7.2 billion.

A stable and improving macroeconomic environment was an important factor in Vietnam achieving a BB- ​​rating in November 2014.

EU countries are Vietnam’s second largest trading partners after China. Vietnam’s export value to the EU reached 29.7 billion USD in 2014, an increase of about 15% compared to 2013.

The continued reduction of trade and investment tariff barriers will help Vietnam's export industry continue to grow and attract more FDI flows.

If the Trans-Pacific Partnership (TPP) Agreement between Vietnam and 11 participating countries is approved, Vietnam will complete free trade agreements with three of its four largest export markets.

Fitch expects Vietnam's macroeconomic stability and improving external accounts to continue to support the country's credit rating, while the positive factors affecting the rating will be vulnerable to rising public debt as well as potential liabilities from the banking sector.

Fitch predicts the state budget deficit will reach 6.5% of GDP this year before gradually falling./.

According toVietnam+