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VEPR forecasts 2016-2020 economic growth

Released at: 14:17, 16/03/2015

VEPR forecasts 2016-2020 economic growth

Three scenarios put forward by Vietnam Institute for Economic and Policy Research.

by Hung Nguyen

The Vietnam Institute for Economic and Policy Research (VEPR) has issued forecasts for Vietnam’s macro-economy in the 2016-2020 period. The forecasts predict that the country’s annual economic growth is unlikely to exceed 6 per cent due to a lack of improvement momentum.

It also predicts that growth in investment may exceed 6 per cent (at constant prices). Credit growth could be around 12-21 per cent per year but will depend primarily on monetary policy and other factors. Such credit growth would be sufficient to control inflation at around 6 per cent, as targeted by the National Assembly (NA), regardless of differing macro-economic conditions.

It should be noted that if credit was to grow by 20 per cent or more there would be a significant possibility of inflation exceeding 10 per cent and damaging macro-economic imbalances.

Maintaining high growth depends on foreign borrowing, so efforts to raise economic growth above 6-6.5 per cent may be accompanied by rapid increases in foreign debt.

The small business environment will improve modestly, with the ASEAN Economic Community (AEC) coming into effect this year perhaps reducing foreign direct investment (FDI) into Vietnam. However, the value of the Chinese yuan (renminbi), the cumulative risks in the Chinese market, and the establishment of the Trans-Pacific Partnership (TPP) may increase foreign investment opportunities in Vietnam.

To improve the speed and quality of economic growth it is crucial to have strong commitments to making bold reforms in order to increase productivity in the economy as a whole and redirect resources towards higher quality outcomes. Economic institutions and administrative reform will play a decisive role, as will improvements in human resources and the expansion of export markets under a modern international connection model. Only with bold reform efforts with high commitments can Vietnam grow over 6 per cent under favorable international conditions. Targeting annual average growth of 7 per cent in the 2016-2020 period is infeasible. In other words, the high growth of the 1990s and early 2000s (averaging 7.5 per cent per year) is unlikely to be seen again.

In the 2016-2020 period, VEPR predicts three different scenarios for Vietnam’s economy, taking into account total factor productivity (TFP), labor social capital investment, real growth rate, incremental capital ratios (ICOR), average domestic savings rates (savings to GDP), FDI, credit to the private sector, average credit growth, and various conditions in the international environment, combined with different policies for mobilizing foreign resources, such as the Vietnam-China relationship, the AEC, the TPP, and free trade agreements.

The first scenario puts annual growth at 4.2-4.6 per cent, the second scenario at 4.66-5.05 per cent per year, and the third at 5.36-5.74 per cent.

  • TAGS
  • VEPR
  • Vietnam's macro economy

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