14:59 (GMT +7) - Wednesday 19/02/2020

Vietnam Today

WB: Medium-term outlook to improve further

Released at: 16:46, 04/10/2018

WB: Medium-term outlook to improve further

Photo: Viet Tuan

Growth of 7.1% in 1H changes annual projection to 6.8% from 6.5%, according to latest WB report.

by Doanh Doanh

Vietnam’s GDP is estimated to have increased by 7.1 per cent year-on-year in the first half of 2018, with its medium-term outlook improving further according to the latest World Bank economic report, Navigating Uncertainty, the October 2018 edition of the World Bank East Asia and Pacific Economic Update released on October 4.

Real GDP is now projected at 6.8 per cent in 2018 (up from 6.5 per cent in the WB’s previous projection) before moderating to 6.6 per cent in 2019 and 6.5 per cent in 2020 due to an envisaged cyclical moderation of global demand.

GDP growth in the first half was broad-based, led by strong manufacturing growth of 13 per cent, bolstered by strong external demand. Agriculture output growth rose 3.9 per cent largely due to strong performance in the export-oriented fishery sub-sector. Meanwhile, expansion in the service sector remained robust at 6.9 per cent, underpinned by strong underlying retail sector growth supported by buoyant private consumption and record tourist arrivals.

Strong GDP growth was accompanied by moderate inflation and a strengthening external position. Annual average head-line CPI rose 3.5 per cent (below the government’s target of 4 per cent this year) while core inflation hovered around 1.4 per cent in the first seven months of 2018.

Robust economic performance is underpinned by a government commitment to macroeconomic stability and private sector-led growth. Economic policies continue to focus on market-oriented reforms to reduce the economic role of the State, boost business conditions, and open the economy up to more private investment.

Vietnam’s dynamic economy continues to translate into broad-based welfare gains and poverty reduction. Expanding wage employment and rising real wages have been the underlying drivers of poverty reduction, accounting for more than half of the poverty reduction since 2014.

Exports continued to perform strongly, benefiting from stronger external demand and expanding capacity driven by robust FDI in export-oriented manufacturing. The value of merchandise exports from Vietnam increased 16 per cent from January to July. At the same time, import turnover eased to 11.1 per cent, resulting in a trade and current account surplus. Supported by a favorable balance of payments, the State Bank of Vietnam has built up its foreign reserves, which stood at a record $64 billion as at June.

Amid moderate price pressure, monetary and credit policies continued to balance stability and growth objectives. Credit growth remained elevated at around 17 per cent year-on-year in June 2018. Such rapid credit expansion may induce excessive risk-taking and poor credit allocation and lead to an associated deterioration in asset quality.

Fiscal consolidation is underway, but the quality and sustainability of the adjustment could be improved. After public debt stabilized in 2017, maintaining fiscal discipline remains a priority. An expenditure-led adjustment reduced the overall fiscal deficit to about 4.6 per cent of GDP in 2017. This together with a reduction in government guarantees and significant equitization proceeds resulted in a decline in public debt-to-GDP ratio to an estimated 58.9 per cent in 2017 from 60 per cent in 2016 (IMF GFS definition). During the first half of 2018, the government continued to contain expenditure growth to offset relatively weak revenue performance.

Despite reduced slack in the economy, WB economists expect inflation to remain around the 4 per cent government target, predicated on some tightening of the monetary stance to counter price pressures emanating from domestic input price pressures and rising global commodity prices. On the external front, the WB expects the current account balance to remain in surplus but start narrowing from 2019 onwards, reflecting widening deficits on the income and services accounts. Fiscal consolidation is expected to contain public debt over the projection period.

Despite a less favorable external environment, the growth outlook for developing East Asia and Pacific (EAP) remains positive. Growth in EAP is expected to be 6.3 per cent in 2018, lower than in 2017 due to the continued moderation in China’s growth as its economy continues to rebalance.

User comment (0)

Send comment