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ADB puts growth at 6% this year and 6.3% next

Released at: 12:12, 27/09/2016

ADB puts growth at 6% this year and 6.3% next

Photo: Duc Anh

Asian Development Outlook Update 2016 notes effect of downturns in agriculture and mining on GDP.

by Doanh Doanh

Vietnam’s economy continues to perform well but is being hindered by a number of challenges, according to the Asian Development Outlook Update (ADOU) 2016 released on September 27 by the Asian Development Bank (ADB).

ADOU 2016 forecasts a downward revision in Vietnam’s economic growth, to 6.0 per cent in 2016 and 6.3 per cent in 2017, as a result of contractions in the agriculture and mining sectors in the first half of this year.

“Drought in the Mekong Delta and central highlands regions and low global commodity prices eased economic growth in the first half of the year, but other sectors have grown strongly,” said Mr. Eric Sidgwick, ADB Country Director for Vietnam.

He added that manufacturing expanded by double digits as new foreign-invested factories ramped up production, while services picked up as a result of rising domestic trade, growing bank lending, and a 25 per cent jump in tourism arrivals.

Vietnam’s economic growth is expected to rise in the second half of this year, buoyed by further increases in FDI and exports, domestic credit growth, a slight recovery in agriculture, and accelerating disbursements of capital expenditure on national infrastructure programs.

The report stressed that while Vietnam’s economy is performing reasonably well against a challenging backdrop, a number of issues will need to be addressed to ensure growth remains sustainable.

A recent surge in bank lending increases the importance of efforts to tighten regulations to prevent a rise in financial sector risks. These efforts will be supported by the gradual introduction of more stringent, Basel II, regulatory standards over the next 12-18 months.

Further, to ease public debt pressures a growth-friendly fiscal consolidation is needed, including a rationalization of recurrent expenditure and tightening of the public sector wage bill. Administration costs as a share of total State budget spending have risen from an average of 8 per cent between 2007 and 2009 to 11 per cent between 2013 and 2016.

The report also noted that trade performance remains a bright spot for Vietnam’s economy. In the first six months of this year the country recorded trade surplus equal to an estimated 8.2 per cent of GDP. This outcome was a big improvement over 2015 and reflects continued growth in exports while import demand has eased.

“Though the country’s strong trade performance is expected to continue, it may be exposed to further slowdown in major industrial economies or unexpectedly low growth in China, an increasingly important trading partner,” Mr. Sidgwick added.

ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, December 2016 will mark 50 years of development efforts.

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