Photo: Viet Tuan
World Bank releases East Asia and Pacific Economic Update.
The World Bank’s recently-released East Asia and Pacific Economic Update forecasts Vietnam’s growth at 6.3 per cent this year, in line with favorable market sentiment and strong foreign direct investment (FDI).
Economic activity moderated in 2016, it stated. GDP is estimated to have expanded 6.2 per cent in 2016, below the 6.8 per cent in 2015. The slowdown was driven by weaknesses in the agriculture and mining sectors while manufacturing output and services growth strengthened.
The agriculture, forestry and fisheries sector expanded by a mere 1.36 per cent; the lowest rate since 2011 and reflecting unfavorable weather conditions in the first half of the year. The industry and construction sector expanded by 7.6 per cent, below the previous year’s 9.6 per cent, driven primarily by a 4 per cent contraction in the mining sector. By contrast, growth in the services sector accelerated to 7 per cent from 6.3 per cent in 2015 due to buoyant private consumption and strong tourism receipts. On the demand side, stronger growth was supported by investment (spurred by strong FDI inflows) and improved private consumption.
Healthy labor market developments point to an aggregate improvement in welfare and a continued decline in poverty. Nearly 1 million people moved from agriculture, finding jobs mostly in industry and construction, which saw 7.6 per cent year-on-year growth, and to a limited extent in the services sector. Observed growth in non-agricultural jobs is expected to compensate or was a coping mechanism for the stagnation of incomes in agriculture due to El Nino weather pattern. However, localized increases in poverty are projected in communities (especially ethnic minorities) that are both more dependent on agriculture and less integrated into the rest of the economy, and those affected by the environmental pollution in central coastal provinces in April last year.
The report noted that Vietnam’s medium-term outlook remains favorable. GDP growth is projected to improve gradually during 2017-2019, driven by robust domestic demand and export-oriented manufacturing. Inflation pressures overall are expected to remain moderate thanks to subdued commodity and energy prices globally. On the fiscal front, some fiscal consolidation is expected, as well as acceleration of divestment, though at a gradual pace that would contain the further rise of public debt.
Vietnam’s medium-term outlook remains positive but pronounced downside risks remain. Domestically, delayed implementation of structural and fiscal reforms could intensify macro-economic vulnerabilities and lower potential growth. Externally, intensifying uncertainties in the global economy could dim Vietnam’s growth outlook through trade and investment channels. Dealing with vulnerability to shocks - which in recent years are mainly climate and environmental disasters - continues to be a challenge for improving household welfare, particularly in rural areas.
In the meantime, the outlook for developing East Asia is expected to remain broadly positive over the next three years, driven by robust domestic demand and a gradual recovery in the global economy and commodity prices.
The East Asia and Pacific Economic Update forecasts China’s growth at 6.5 per cent in 2017 and 6.3 per cent in 2018, compared with 6.7 per cent in 2016. In the rest of the region, including large economies in Southeast Asia, growth is expected to pick up slightly, to 5 per cent in 2017 and 5.1 per cent in 2018, up from 4.9 per cent in 2016. As a whole, the economies of developing East Asia and Pacific are projected to expand at 6.2 per cent in 2017 and 6.1 per cent in 2018.
“Sound policies and a gradual pickup in global economic prospects have helped developing East Asia and Pacific sustain growth and reduce poverty,” said Ms. Victoria Kwakwa, World Bank Vice President for East Asia and Pacific. “For this resilience to be sustained, countries will need to reduce fiscal vulnerabilities while improving the quality of public spending and fostering global and regional integration.”