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WB: Economic outlook remains positive

Released at: 14:52, 02/12/2015

WB: Economic outlook remains positive

World Bank releases "Taking Stock: An Update on Vietnam's Recent Economic Developments" report, noting continued strong performance while touching on issues to be addressed.

by Quynh Nguyen

Although its forecast for GDP growth in 2016 is 6.6 per cent, which is lower than the 6.7 per cent targeted by the National Assembly, economic experts from the World Bank attending a conference to release the World Bank’s “Taking Stock: An Update on Vietnam’s Recent Economic Developments” on December 2 still affirmed that the country’s economy will continue to increase over the next year with many positive news in export growth and integration.

In the report the World Bank’s experts agree that Vietnam’s economy has weathered the recent turbulence in the external environment, underpinned by further recovery in domestic demand, which in turn reflects robust private consumption and investment growth.

“Stronger domestic demand, robust export performance, low inflation and improved confidence have enabled Vietnam to create firmer foundations for mid-term growth,” said Ms. Victoria Kwakwa, the World Bank Country Director for Vietnam. “This is a good time to solidify macro-economic stability and rebuild policy buffers through decisive efforts to rein in fiscal imbalances and tackle the remaining vulnerabilities in the banking sector.”

World Bank Senior Economist Sebastian Eckardt, meanwhile, said that Vietnam has excelled in exports, recording the highest export growth in developing East Asia. Its goods trade performance has benefited from dynamism in the foreign-invested manufacturing sector, as leading international manufacturers have expanded the production of electronics, mobile phones, and associated goods.

While the foreign-invested sector records a significant trade surplus (about 9 per cent of GDP in 2015), its increasing share of imported intermediate inputs reflects limited domestic value addition, the report stated.

The report also showed that the implementation of structural reforms continues along a gradual path. Although the pace of the equitization process has picked up, many transactions involve divestment of minority shares, hampering the expected impact on investment and enterprise performance.

Meanwhile, Vietnam’s ranking in the Doing Business (DB) survey has increased from 93rd in DB2015 to 90th in DB2016 among 189 economies. But its competitiveness is still ranked below the average for the ASEAN-4 countries, with slow improvements in infrastructure, the institutional framework, and the business environment.

Despite recent improvements, challenges remain across several dimension of the business climate

The TPP is expected to generate considerable benefits for Vietnam. Among the current TPP signatories Vietnam, as the economy with the lowest per capita GDP, has unique comparative advantages, particularly in labor-intensive manufacturing.

The TPP is expected to create trade diversion by enhancing access to key export markets, since Vietnamese exports would be expected to replace an increasing share of Chinese exports to TPP markets, notably the US and Japan; a trend already seen before the TPP’s conclusion.

Economic experts at the World Bank noted that the medium-term outlook for Vietnam remains positive, with growth projected to strengthen and inflation expected to remain low. However, slow structural reform poses risks to medium-term growth prospects, while delays in implementing fiscal consolidation could undermine debt sustainability.

Against a backdrop of such uncertainties, the report suggests that sound macro-economic management remains crucial, to rebuild policy buffers and safeguard against future shocks. Fiscal consolidation, structural reforms, and a further build-up of reserves could help reduce vulnerabilities, the report recommended.

“Vietnam will gain a lot of benefits to promote integration. The recently-concluded TPP will not only improve market access but will also serve as a critical anchor for the next phase of structural reforms in Vietnam. But the more important thing is that Vietnam needs to take the benefits from integration. In my opinion, Vietnam needs a comprehensive reform program. We must ensure a favorable environment for the domestic private sector and the allocation of credit and land for investment by foreign firms. It is also necessary to have better connections in terms of trade for the domestic private sector. This will be an important factor in helping Vietnam benefit from integration in the future.”

Mr. Sandeep Mahajan, Lead Economist at the World Bank Vietnam

“The capacity for integration among Vietnam’s enterprises is still very positive, although the country has many small and medium-sized enterprises (SMEs) and even very small enterprises whose ability to access the opportunities from integration is weaker than large enterprises. But I believe they can do better in integration, because Vietnam is pushing support industries, in which SMEs can participate. However, the most important thing is to create an equal environment in accessing capital and developing business ideas. It is necessary to provide information for SMEs so that they make the best preparations.”

Mr. Pham Minh Duc, Senior Economist at the World Bank Vietnam

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