Updated assessment
According to the Asian Development Bank (ADB) Viet Nam’s economic growth will exceed expectations for 2015 and 2016, with sensible pro-growth monetary and fiscal policies helping to restore acroeconomic stability, and recent policy reforms boosting business confidence said.
“Viet Nam’s improving economic growth performance is being driven by a number of factors, particularly stronger output from manufacturing sector and also rising consumer spending and macroeconomic stability,” said Mr. Eric Sidgwick, ADB Country Director for Viet Nam.
The report notes that manufacturing output growth is particularly strong, increasing by 9.9% in the first half of the year as foreign-invested factories boost the production of goods for export.
GDP growth speed to 6.3% in January-June, the fastest first-half pace since 2010. The acceleration was driven by industry, which expanded by 9.1% over the same period in 2014 and contributed nearly half of total growth. New mineral investments helped the mining subsector to expand by 8.2%, recovering from contraction in the first half of 2014. Construction accelerated to grow by 6.6% owing to a modest recovery in the property market and to higher investment in infrastructure.
Growth in services was little changed at 5.9% in the first half. A pickup in wholesale and retail trade was offset by a drop in tourism that saw visitor arrivals fall by 11.3%. Agriculture, forestry, and fisheries recorded modest growth at 2.4%, half a percentage point down from a year earlier due to bad weather and weak commodity prices.
On the demand side, low inflation encouraged robust 8.9% growth in private consumption. Investment also improved as gross capital formation increased by 6.9%, lifted by faster credit growth and rising disbursements of foreign direct investment (FDI). However, net external demand weighed on GDP growth because a rapid increase in imports of goods and services, reflecting stronger investment and consumption, exceeded growth in exports.
After a challenging few years, the financial sector also appears to be picking up momentum. Credit growth now looks set to exceed official targets during 2015. Government policy has also been aided by lower global commodity prices which have helped to contain price growth, lift disposable incomes and lower business costs.
Inflation subsided to 0.6% year on year in August 2015, a steep decline from a peak of 23.0% in August 2011. For the first 8 months of this year, inflation averaged just 0.8%. Lower global oil and commodity prices have held down transportation and food prices.
Source: Asian Development Outlook databaseProspects
Economic growth is expected to accelerate through the second half of 2015, underpinned by rising private consumption, export-oriented manufacturing, and foreign direct investment.
The report said that private consumption is benefitting from low inflation, improved consumer confidence, and growth in nonfarm wage employment.
A 2014 labor market survey showed 800,000 people moving each year from agriculture and its low productivity and pay into better-paid enterprise and employment in other sectors.
Manufacturing continues to attract substantial FDI inflows. Of $84.8 billion in new FDI commitments from 2011 to August this year, 70% was to expand manufacturing, largely to produce exports. FDI disbursements rose to $8.5 billion in the first 8 months of this year. The average monthly value of exports from foreign invested firms increased sharply from almost $3 billion in early 2010 to $10 billion in August 2015.
Foreign-owned firms now generate 70% of total exports, up from half 5 years ago. Domestic enterprises have been much less successful at integrating into global markets. Exports from domestically owned firms have languished at $2 billion–$4 billion per month since January 2010.
These achievements notwithstanding, Viet Nam does face some growing macroeconomic challenges. Slowing economic growth in the People’s Republic of China, one of Viet Nam’s largest trade and investment partners, may dampen trade prospects while continued low global commodity prices will reduce export earnings for key sectors like oil and agriculture.
“To mitigate these challenges it will be vital for the country to continue to deepen structural and financial sector reforms, increasing productivity growth and boosting Viet Nam’s international competitiveness,” said Mr. Sidgwick.
