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Economic News

Last updated: Friday, December 15, 2017

 

ADB Revises Down Vietnam’s 2017 GDP Growth Forecast to 6.3%

Posted: Tuesday, September 26, 2017


The Asian Development Bank Tuesday revised down its forecast for Vietnam’s economic growth for this year to 6.3% from 6.5% following a drop in the output of the mining and oil sector, and warned that a strong credit growth may increase financial sector risks.

The ADB said in its Asian Development Outlook Update released Tuesday that Vietnam’s mining and oil output contracted 8% in the first half of this year from a year earlier, but added that the economy continues to perform well.
 
“Despite the drop in mining and oil output, Vietnam’s economy continues to perform well, driven by its twin engines of export-orientated manufacturing and rising domestic consumption”, said Mr. Eric Sidgwick, ADB Country Director for Vietnam.

“Manufacturing expanded by 10.5% in the first half of the year as new foreign-invested factories ramped up production, while the services sector continued to pick up steam as a result of rising retail trade, growing bank lending and a 30% jump in tourism arrivals,” he said.

Vietnam’s economic growth is expected to rise in the second half of the year, buoyed by further increases in foreign direct investment and exports, domestic credit growth, a further recovery in agriculture from the 2016 drought and accelerating disbursements of capital expenditure on national infrastructure programs, the ADB said.

However, the ADB said Vietnam’s recent efforts to raise already strong bank lending growth by lowering interest rates to historical lows have the potential to increase financial sector risks, particularly given the large stock of past unresolved bad debts.

To ensure these risks are well managed it will be vital to strengthen regulations and supervision on loan quality and to continue the introduction of more stringent, Basel II, regulatory standards over the next 12-18 months, it said.
It added that the recent progress in trimming the budget deficit has also led to a drop in capital spending which if not rebalanced could erode Vietnam’s long-term growth performance.

“For Vietnam’s fiscal consolidation to be ‘growth-friendly’ the authorities may usefully focus on adopting additional taxation measures while trimming non-core public expenditures such as administrative expenses which have crowded-out infrastructure in recent years,” it said.

It noted that while export-oriented manufacturing remains a bright spot for Vietnam’s economy, the trade surplus narrowed faster than expected, as surging imports outpaced export growth. In the first six months of the year, the trade surplus shrank to equal an estimated 1.5% of GDP from 8.1% in the first half of 2016.

“Though the country’s strong trade performance is expected to continue, it may be exposed to increased risks if a slowdown in major industrial economies occurs or from unexpectedly low growth in China, an increasingly important trading partner,” added Mr. Sidgwick.

VTK








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