ADB retains Vietnam’s 2019 economic forecast at 6.8% amid global uncertainties

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Ngoc Thuy 11:53, 2019/09/25

The economy remains healthy thanks to continued strength in domestic demand and sustained inflows of foreign direct investment, said ADB Country Director for Vietnam Eric Sidgwick.

Vietnam’s economy is forecast to maintain healthy growth in 2019 and 2020 at 6.8% and 6.7%, respectively, unchanged from previous projections, after growing robustly by 7.1% last year, the Asian Development Bank (ADB) said Wednesday in an update of its flagship annual economic publication.

Overview of the conference. Source: Ngoc Thuy.

In the Asian Development Outlook (ADO) 2019 Update, ADB noted that while Vietnam’s GDP growth moderated in the first half of 2019, it will remain resilient this year and next year despite a weaker external environment.

Inflation forecasts are revised down to 3% from 3.5% for 2019 and 3.5% from 3.8% for 2020,

“Despite a slowdown in export growth due to the escalation of the trade conflict between the US and China and the consequent downturn in global trade, the economy remains healthy thanks to continued strength in domestic demand and sustained inflows of foreign direct investment,” said ADB Country Director for Vietnam Eric Sidgwick. “Prospects for domestic consumption continues to be positive, supported by rising incomes, buoyant employment, and moderate inflation.”

The recent signing of a free trade agreement with the European Union promises to further open market access for trade and investment, as does the regional Comprehensive and Progressive Agreement for Trans-Pacific Partnership. FDI inflows should therefore continue to be strong in the near term, as evidenced by US$13.1 billion in FDI commitments made in the first eight months of 2019.

A recent amendment to the Public Investment Law should improve public investment by accelerating processes, simplifying procedures, and enabling faster disbursement of public investment.

According to the report, the government will continue to pursue fiscal consolidation. While disbursement on capital expenditure should speed up, the government is continuing its effort to strengthen revenue collection and impose much tighter controls on nonessential spending to contain the budget deficit and improve public debt sustainability.

Despite only moderate inflation, prudent monetary policy will continue in 2019 and is foreseen holding credit growth within the government target of 14%. Banks are under continued pressure to meet Basel II requirements by 2020. Credit will thus continue to be discouraged for high-risk investments such as real estate.

While retaining the growth outlook for Vietnam for this year and the next, the report highlighted significant risks to the forecast. Further escalation of the US-China trade tension and continuing global economic slowdown could shrink global trade, which will adversely impact the country’s trade performance and economic growth.

Deeper integration into global value chain as priority

Referring to recent remarks by Vietnamese government leaders that the country faces challenges of falling in the middle-income trap, Sidgwick told Hanoitimes that it has only been nine years since the country’s graduation from the status of low-income country, while current practice indicates a country would need 20 – 30 years to move from middle to high income status.

“It is still early for Vietnam to think of falling into the middle income trap, as this is a long process, not to mention the country has been maintaining high economic growth rate on a consistent basis,” Sidgwick said.

However, Sidgwick noted Vietnam should address the issue of infrastructure gap, which starts becoming an issue with more investors coming to Vietnam as an alternative to China.

More importantly, Vietnam must push for greater integration into the global value chain, Sidwick stated, saying this is the main driving force for Vietnam’s development in the next period.

To achieve the latter, Sidwick urged a greater institutional efficiency for the private sector, as well as continuous effort in giving a favorable environment and enhancing state governance efficiency.

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