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Vietnam’s economy to grow 6.5% in 2018 - WB report
The Saigon Times Daily
Friday,  Apr 13, 2018,15:03 (GMT+7)

Vietnam’s economy to grow 6.5% in 2018 - WB report

The Saigon Times Daily

HCMC – The World Bank said on April 12 Vietnam’s gross domestic product (GDP) growth is forecast to stabilize at around 6.5% this year, way below the Asian Development Bank’s (ADB) 7.1% growth forecast released a day earlier.

The ADB said in its flagship economic publication “Asian Development Outlook” that the Southeast Asian nation’s GDP growth would accelerate from 6.8% last year to 7.1% this year before easing back to 6.8% next year.

Meanwhile, in the April 2018 edition of the World Bank East Asia and Pacific Economic Update released on April 12, the global lender said growth and macroeconomic stability of the country are expected to be sustained over the medium term.

Inflation is projected to remain moderate, backed by a benign global price environment, while strong wage growth may ultimately lift core inflation, according to the report.

External balances are projected to benefit from robust exports and foreign direct investment (FDI) inflows. On the fiscal front, the combination of deficit reduction and divestment from State-owned enterprises (SOEs) is expected to contain public debt over the medium term.

Sudhir Shetty, World Bank Chief Economist for the East Asia and Pacific region, was quoted by Reuters as saying at a press conference on April 12 that the forecast did not take into account a potential trade war between the world’s two largest economies – China and the United States, although he did not feel it was imminent.

However, Shetty noted that two thirds of Chinese goods on a U.S. list targeted for increased tariffs are made in a supply chain that stretches across the region, particularly in the Philippines, Malaysia and Vietnam.

Should the tariffs be imposed on goods assembled in China, there would be “a knock-on effect” on economies in the supply chain. That is a significant thing to be concerned about because the success of this region is based on open trade, he added.

Concerning Vietnam’s GDP forecast, he said it would be tough for the economy to expand as strongly as in 2017.

Dinh Tuan Viet, senior economist at the WB in Vietnam, said the brief report is to serve the 2018 Spring Meetings themed “Meeting Global Aspirations and Challenges” of the World Bank Group and the International Monetary Fund (IMF) next week. Its predictions were made before the preliminary data of Vietnam’s first-quarter economic growth was released.

Regarding the GDP rate of 7.48% in quarter one, Viet said the figure was somehow unusual but reasonable because it was based on the low rate of 2017’s quarter one at a mere 5.15%.

The expert stressed the global lender remains cautious, as it intends to collect more data and analyze the economic situation of Vietnam to have a correct answer. The quarter-one growth in 2018 is the “accelerator” of last year’s half, or Vietnam begins its high and sustainable growth cycle.

“Though we highly evaluate Vietnam’s sustainable growth and well-contained inflation, the WB also suggests some risks and challenges which should be noticed,” he added.

However, the report said there are significant challenges despite the generally favorable medium-term outlook.

Domestically, a slowdown in structural reforms could weaken the ongoing recovery and weigh on Vietnam’s medium-term potential growth. There is also a risk that fiscal consolidation may erode pro-poor fiscal expenditures and investments in human and physical capital, according to the WB.

Externally, strong trade and investment links expose Vietnam’s economy to risks associated with a potential rise in protectionism and a possible weakening of external demand.

The bank emphasized these risks call for further steps to enhance macroeconomic resilience, including more exchange rate flexibility, a further buildup of foreign reserves, and responsive monetary and macro-prudential policies that moderate credit expansion and bolster capital buffers in the banking sector.

On the fiscal front, there remains a need for deeper revenue and expenditure reforms, including broadening tax bases, right-sizing of the public administration, and higher value for money in public investment.

The bank suggested steps to solidify macroeconomic stability need to be accompanied by progress in structural reforms to lift productivity and potential growth, including reforming the SOE sector, improve the regulatory environment, and enhance factor markets, including land and capital.

Earlier, some organizations at home and abroad gave their different growth forecasts. HSBC Bank, the Central Institute for Economic Management, the Vietnam Institute for Economic and Policy Research, and the Asian Development Bank put the rate at 6.5%, 6.67%, 6.83% and 7.1% respectively.

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