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WB: Growth projected to stabilize in medium term

Released at: 15:33, 11/12/2017

WB: Growth projected to stabilize in medium term

Photo: Duc Anh

Stronger domestic demand, robust export-oriented manufacturing, and a gradual recovery of the agriculture sector are driving Vietnam's economy, World Bank's Taking Stock report notes.

by Doanh Doanh

The pace of Vietnam’s growth is expected to increase to 6.7 per cent this year, according to Taking Stock, the World Bank’s bi-annual economic report on Vietnam, released on December 11. Over the medium term, growth is projected to stabilize at around 6.5 per cent and inflation will remain low, the report stated.

Stronger domestic demand, robust export-oriented manufacturing, and a gradual recovery of the agriculture sector are driving Vietnam’s economy, which expanded by 6.4 per cent during the first nine months of the year compared to the same period last year. The manufacturing and services sectors grew 12.8 per cent and 7.3 per cent, respectively, during the same period.

“Growth momentum picked up across major economies and global trade recovered in 2017,” said Mr. Ousmane Dione, the World Bank Country Director for Vietnam. “With incomes rising and poverty falling, Vietnam’s economy had another good year of strong growth and broad macroeconomic stability.”

Low inflation and rising real wages sustained buoyant domestic demand and private consumption, while the stronger global economy helped Vietnam’s export-oriented manufacturing and agricultural sectors. Job growth continued, with 1.6 million new jobs added in the manufacturing sector over the past three years and 700,000 additional jobs in the construction, retail, and hospitality sectors, leading to higher aggregate labor productivity. Labor demand also contributed to rapid wage growth, with wages increasing 15 per cent cumulatively between 2014 and 2016.

Despite progress in resolving non-performing loans, risks remain, including the lack of robust capital buffers in some banks, especially amid rapid credit growth.

Fiscal tightening is underway, the report highlighted, and has led to a leaner budget deficit and containment of public debt accumulation. However, the decline in public investment - falling to 16 per cent of total spending in the first nine months of 2017 compared with an average of 25 per cent in recent years - may not be sustainable over time, as Vietnam needs significant investments in infrastructure to support future growth.

A slow-down in structural reforms could also impact the ongoing recovery, especially given the weaker growth in investment. Enhancing macroeconomic resilience and structural reforms can lift Vietnam’s growth potential over the medium term. “Structural reform remains a central priority in view of tepid productivity growth,” said Mr. Sebastian Eckardt, the World Bank Lead Economist for Vietnam.

He added that building on progress already made, Vietnam can further lift productivity growth through investments in needed infrastructure and skills as well as deeper reforms of the business environment, State-owned enterprises (SOEs), and the banking sector.

Taking Stock’s special section focuses on improving efficiency and equity in public spending. With public debt close to the statutory limit of 65 per cent of GDP, the government faces tight budget constraints for several years to come. The special section looks at fundamental expenditure reforms in key public services to identify opportunities for constraining expenditure growth through improvements in expenditure productivity.

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