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AMRO: Vietnam's short-term growth outlook remains positive

Released at: 17:08, 28/05/2018

AMRO: Vietnam's short-term growth outlook remains positive

Photo: AMRO

Hanoi seminar hears of key findings from recent report on ASEAN+3 region.

by Linh San

The ASEAN+3 region is growing strongly but regional economies should improve connectivity, develop a robust service sector, and build a skilled workforce to adapt to a changing world, as highlighted by speakers at a seminar held in Hanoi on May 25 by the Ministry of Finance (MoF) and the ASEAN+3 Macroeconomic Research Office (AMRO). The seminar was attended by representatives from government agencies, international organizations, research institutions, and the private sector. Dr. Vu Nhu Thang, Director-General of the International Cooperation Department at the MoF, delivered the opening remarks.

With the theme “ASEAN+3 Regional Economic Outlook: Resilience and Growth in a Changing World”, the seminar presented key findings from AMRO’s recently-released ASEAN+3 Regional Economic Outlook (AREO) 2018, to set the context for discussions.

In his presentation, AMRO’s Chief Economist Dr Hoe Ee Khor said that with improving external demand, growth in the ASEAN+3 region, which includes the ten ASEAN members and China (including Hong Kong), Japan, and South Korea, is expected to be sustained at 5.4 per cent in 2018 and 5.2 per cent in 2019. Vietnam’s economy rebounded strongly in 2017 and the short-term growth outlook remains positive, with real GDP expanding at a robust 7.4 per cent in the first quarter of 2018; the highest first quarter growth seen in the past seven years.

The ASEAN+3 region is facing two near-term risks: faster-than-expected tightening in global financial conditions and an escalation of global trade tensions. If these risks materialize, there would be spillover effects in the region through capital outflows, higher borrowing costs, and lower trade and investment flows.

To enhance resilience, policymakers in the region should continue to build policy space, particularly in monetary policy, in anticipation of tighter global financial conditions ahead. Fiscal policy may have to play a greater role in supporting growth, while macro-prudential policy could help safeguard financial stability.

During the discussions, the panel noted that the region has successfully pursued a strategy of “manufacturing for exports”, whereby economies benefitted from export-oriented foreign direct investment (FDI) to build up manufacturing capacity. Vietnam, alongside China and other large ASEAN economies, has succeeded in attracting FDI and building a competitive manufacturing sector, which has created jobs and boosted exports.

While this strategy has boosted economic growth, employment, productivity, and wages over the past few decades, it has been put to test by trade protectionism, changes in trade and production networks, and technology. Technology has proven to be a double-edged sword, as manufacturing is becoming more capital- and skills-intensive and will no longer employ as much labor as in the past. Structural changes in global value chains have also allowed countries to produce domestically instead of importing intermediate inputs. Technology, however, has also facilitated the emergence of the services sector as a potential new engine of growth and employment, in addition to the manufacturing sector.

To address these challenges, the panel suggested that the region strengthen intra-regional connectivity and integration to leverage growing intra-regional demand for goods and services and improve resilience against external shocks.

“Vietnam has been a success story in building its manufacturing capacity and attracting FDI in the past decades, integrating itself into global value chains and global trade production networks,” said Dr. Khor. “To adapt to a changing world, the country and other economies in East Asia should build resilience through developing multiple engines of growth, including the growing services sector.”

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