WB optimistic of Vietnamese economic outlook

Nguyễn Lê - Jul 14, 2017 | 10:44 AM GMT+7

TheLEADERVietnam's medium-term outlook remains positive, with GDP growth expected to increase slightly to 6.3% in 2017 - The World Bank (WB) said in a report on Vietnam's economic development published on July 13.

WB optimistic of Vietnamese economic outlook
Economic growth with high credit growth may raise concerns about asset quality. Photo: WB

"Vietnam's economy is still showing its resilience thanks to the strength of Vietnam's fundamental growth drivers - including domestic demand and process manufacturing," said Sebastian Eckardt, Chief Economist from World Bank Vietnam, commented.

According to the agency, the growth momentum has been maintained as a favorable factor for Vietnam to tackle the structural constraints for medium-term growth, and to stabilize the macro economy and create new policies.

Taking a deeper look at recent economic developments in Vietnam, the report reveals that the mining sector which currently accounts for about 7.4% of GDP is significantly affected as its output falls 8.2%, leading to a decrease of 0.6% in overall GDP in the first six months of the year. As the natural output of Vietnam's large oil fields are declining and the government policy guides the economy to less depend on natural resource exploitation, the target of crude oil production is set at 12.3 million tons (about 246,000 barrels per day), down 19.2% compared to that of 2016.

In the first 6 months of 2017, crude oil production fell 12.5% yoy to 6.9 million tons. However, in order to curb the decline of the mining sector in particular and the industrial sector in general, the Government has proposed the Vietnam National Oil and Gas Group to consider the possibility of exploiting at least one extra million tons of crude oil in 2017.

Monetary policy still has to balance between macro stability and growth support, with relatively low real interest rates and high credit growth, at around 20% (over the same period). However, high level of economic growth and high credit growth may raise concerns about the quality of assets, especially when bad debts have not been thoroughly addressed, the report states.

The authors also commented that the current account balance of Vietnam after gaining a large surplus in 2016 has been gradually reduced in the first months of 2017 because import growth is faster than export growth.

The nominal exchange rate remains relatively stable, but the real exchange rate (REER) continues to increase. The real exchange rate rises thanks to the large foreign trade surplus in the foreign direct investment (FDI) sector, but this may badly effect Vietnamese private firms as they have to face huge challenges in terms of competitive capabilities.

According to the report, Vietnam's economic prospects are still favorable when growth is maintained along with stable macroeconomic conditions. Economic growth is expected to improve in the second half of the year, driven by personal consumption, export-oriented manufacturing and foreign investment.

The report also notes that increasing global uncertainties require Vietnam to continue to be more cautious in macroeconomic governance. Based on the sustained growth, the priority step is to consolidate the macroeconomic stability and buffering policy. Reducing budget overshooting is critical to curb the growing risks of budget sustainability to deal with potential shocks on the future. Moreover, risk assessment and capital supervision should be continued to minimize the risks arising in the context of credit expansion.

WB experts said that the long-term challenge ofVietnam is to maintain sustainable high growth rate and reduce sustainablepoverty. Barriers to productivity growth and competitiveness of Vietnam'seconomy are expected to be eliminated align withstructural reforms whichinclude restructuring state-owned enterprises andfurther improving business environment.