Vietnam's economy stable against a challenging global environment, latest ADB report notes.
Vietnam’s economy will remain sustainable, with growth of 6.7 per cent in 2016 followed by a modest slowing to 6.5 per cent in 2017, according to the latest Asian Development Bank (ADB) report, released on March 30.
Growth this year will be equal to the figure in 2015 and be the highest since 2008, driven by foreign direct investment (FDI), strengthening domestic consumption and demand, and pro-growth policy settings.
Industry grew by 9.6 per cent and contributed nearly half of total growth, the report noted. Powered by high FDI, manufacturing rose by a rapid 10.6 per cent and construction by 10.8 per cent on the back of foreign investment in factories, a recovery in the property market, and higher spending on infrastructure.
By expenditure, private consumption accelerated to 9.3 per cent, spurred by rising employment and incomes and lower inflation. Investment also strengthened, as buoyant FDI inflows and expansion in credit supported a 9.0 per cent rise in gross capital formation. Net external demand weighed on GDP growth, though, as imports of goods and services in real terms rose faster than exports.
Monetary and fiscal policies were supportive of growth, as were trade agreements and the easing of restrictions on foreign ownership of property and corporate shares.
While the economy is performing reasonably well Vietnam does face significant short-term and long-term challenges.
According to Mr. Erick Sidgwick, ADB Country Director for Vietnam, in the short term the government must navigate the impacts of a slowing global economy while at the same time rebuild macro-economic buffers that would allow the country to be resilient to any future economic shocks. “Over the long term, greater efforts are also needed to address Vietnam’s low productivity growth and to support domestic firms’ ability to integrate into global value chains,” he said.
The report emphasizes the importance of deepening the process of State-owned enterprise reform, to remove the distorting impact these firms have on the economy and its competitiveness. “The government should also continue to take action to strengthen the banking system, including a clear plan for resolving non-performing loans, as this continues to stifle the creation of an efficient and inclusive financial sector,” the report stated.
While Vietnam will be a major beneficiary of recent free trade agreements it will also have to deal with some significant adjustment costs. As the economy opens up to increased competition and more stringent export standards, domestic firms will face increasing commercial pressure.
“To ensure the economy is able to maximize the benefits from the agreements the government must move in parallel to create a more productive and innovative economy that can more readily adapt to increasing competition,” Mr. Sidgwick said.