Economic Sector

Last updated: Wednesday, January 23, 2019


Vietnam Economy: Stable and Positive Medium Term Outlook

Posted: Thursday, July 27, 2017

The latest Taking Stock, the World Bank’s biannual economic report on Vietnam, recognises strong momentum in Vietnam’s economy in the first half of 2017 and points to policies to solidify macroeconomic resilience and address structural bottlenecks to growth.

Amidst strengthening recovery in the global economy since late 2016, Vietnam’s gross domestic product (GDP) expanded by 5.7 per cent during the first half 2017, while inflation has so far moderated and core inflation remains low, at less than 2 per cent.

“Vietnam’s economy is strong, as a result of strong momentum of Vietnam’s fundamental growth drivers - domestic demand and export-oriented manufacturing,” said Sebastian Eckardt, Lead Economist and Acting Country Director for the World Bank in Vietnam.

According to the WB, the service sector, which accounts for over 40 per cent of GDP, accelerated in the first half of this year, driven by buoyant retail trade growth, as a result of sustained growth of domestic consumption. Industrial production remains robust despite a significant reduction of output in the oil sector, and growth has gradually recovered in agriculture, though the recovery is still fragile.

The report noted that after a large surplus in 2016, Vietnam’s external current account balance started to decline in early 2017, due to an expected recovery in import growth. The nominal exchange rate has been relatively stable, but the real effective exchange rates (REER) continue to appreciate.

Vietnam’s medium-term outlook remains positive, with real GDP growth projected to accelerate slightly to 6.3 per cent in 2017, as a result of buoyant domestic demand, rebounding agricultural production, and strong export-oriented manufacturing, aided by a recovery in external demand. Inflationary pressures will remain moderate, reflecting stable core inflation, lower food and energy prices and diminishing administrative price hikes. The current account is expected to remain in surplus, albeit at a lower level as stronger import growth resumes. Over the medium term, growth is projected to stabilise at around 6.4 per cent in 2018–19, accompanied by broad macroeconomic stability.

The report argues that elevated global uncertainty calls for macroeconomic prudence from Vietnam. Containing risks from rapid credit growth requires continued improvements in supervision and prudential regulation. The longer term challenge for Vietnam is to sustain rapid growth and poverty reduction. Considerable gains are possible from structural reforms that alleviate constraints on productivity growth, including through SOE reforms, further improvements in the business environment and improved factor markets for land and capital.

Bao Chau

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