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WB: 6.3% growth in 2017 suitable for Vietnam

Released at: 20:12, 13/07/2017

WB: 6.3% growth in 2017 suitable for Vietnam

Photo: Quynh Nguyen

World Bank leaves forecast of 6.3% GDP growth unchanged.

by Quynh Nguyen

The World Bank has maintained its forecast for Vietnam’s economic growth this year of 6.3 per cent despite the Prime Minister saying he is confident about 6.7 per cent growth.

According to Mr. Sebastian Eckardt, Lead Economist and Acting Country Director for the World Bank in Vietnam, the figure of 6.3 per cent is suitable in the context of global uncertainties. “The most important thing is ensuring sustainable growth based on market demand,” he said.

Amid strengthening recovery in the global economy since late 2016, Vietnam’s GDP expanded by 5.7 per cent during the first half of this year while inflation has so far moderated and core inflation remains low, at less than 2 per cent.

“Vietnam’s economy is strong, as a result of strong momentum in its fundamental growth drivers - domestic demand and export-oriented manufacturing,” Mr. Eckardt said. “These are good conditions to address critical structural bottlenecks to medium-term growth while solidifying macroeconomic stability and rebuilding policy buffers.”

According to the WB’s report, the service sector, which accounts for about 42 per cent of GDP, accelerated in the first half of this year, driven by buoyant retail trade growth as a result of sustained growth in domestic consumption.

Industrial production remains robust despite a significant reduction in output in the oil sector, and growth has gradually recovered in agriculture, though remains fragile.

Monetary policy continues to balance growth and stability objectives, with low real interest rates and rapid credit growth of about 20 per cent year-on-year.

The rising credit intensity of growth and sustained acceleration of credit may raise concerns over asset quality, particularly given past unsolved bad debts.  

The report notes that after a large surplus in 2016, Vietnam’s external current account balance started to decline in early 2017 due to an expected recovery in import growth. The nominal exchange rate has been relatively stable but the real exchange rate continues to appreciate.

Real exchange rate appreciation is driven by a large external surplus in the FDI sector but is a concern for Vietnam’s domestic private enterprises, which continue to face significant competitiveness challenges.

Mr. Eckardt noted that the trade deficit is good news for Vietnam because it proves its attraction to foreign investors. “When foreign manufacturers come to Vietnam to base their plant, they of course will import raw materials for production,” he said. “So, a trade deficit is understandable.”

The report argues that elevated global uncertainties call for macroeconomic prudence. In view of sustained growth momentum, solidifying macroeconomic stability and rebuilding policy buffers should remain the foremost priority.

Lowering the fiscal deficit would help to contain rising risks to fiscal sustainability and provide fiscal space to accommodate potential future shocks. Containing risks from rapid credit growth requires continued improvements in supervision and prudential regulation.

The longer-term challenge for Vietnam is to sustain rapid growth and poverty reduction. Considerable gains are possible from structural reforms that alleviate constraints on productivity growth, including through State-owned-enterprise reforms, further improvements in the business environment, and improved factor markets for land and capital.

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