The World Bank (WB) has recently released the East Asia and Pacific Update (October 2016), showing that economic activity in Vietnam moderated somewhat in the first three quarters of 2016 due to the impact of a severe drought on agricultural production and slower industrial growth. But macroeconomic stability has been maintained and inflationary pressures remain subdued.
The newly released East Asia and Pacific Economic Update expects developing East Asia is expected to grow at 5.8 per cent in 2016 and 5.7 per cent in 2017-2018. However, the region still faces significant risks to growth, and countries need to take measures to reduce financial and fiscal vulnerabilities.
Vietnam: Agriculture and industry decline
Amidst slower global growth, Vietnam’s economy has proven resilient. Economic activity in Vietnam moderated somewhat in the first three quarters of 2016, due to the impact of a severe drought on agricultural production and slower industrial growth. But macroeconomic stability has been maintained and inflationary pressures remain subdued.
While Vietnam continues to reduce poverty, the decline in agriculture poses short-term risks. The livelihoods of households that rely on agriculture for income are particularly vulnerable. For the medium-term, the outlook remains positive. But easing macroeconomic vulnerabilities and sustaining higher medium-term growth would need a bolder implementation of structural, fiscal and banking sector reforms.
The report expects China to continue its gradual transition to slower, but more sustainable, growth, from 6.7 per cent this year to 6.5 per cent in 2017 and 6.3 per cent in 2018. In the rest of the region, growth is projected to remain stable at 4.8 per cent this year, and rise to 5 per cent in 2017 and 5.1 per cent in 2018. Overall, developing East Asia is expected to grow at 5.8 per cent in 2016 and 5.7 per cent in 2017-2018.
“The outlook for developing East Asia and Pacific remains positive, with weakness in global growth and external demand offset by robust domestic consumption and investment,” said Victoria Kwakwa, World Bank Vice President for East Asia and Pacific. “The long-term challenge is to sustain growth and make it more inclusive, including by shrinking gaps in income and access to public services, especially in China; improving infrastructure across the rest of the region; reducing persistent child malnutrition; and harnessing the potential of technology to stimulate financial inclusion.”
The report offers a comprehensive analysis of the outlook for East Asia and Pacific against a challenging global backdrop, including sluggish growth in advanced economies, subdued prospects in most developing economies and stagnant global trade. The report expects domestic demand to remain robust across much of the region. Continued low commodity prices will benefit commodity importers and keep inflation low across most of the region.
Focus on poverty reduction and infrastructure development
Growth in developing East Asia and Pacific is expected to remain resilient over the next three years, according to the World Bank report. However, the region still faces significant risks to growth, and countries need to take measures to reduce financial and fiscal vulnerabilities. Over the longer term, the report recommends that countries address constraints to sustained and inclusive growth, including by filling infrastructure gaps, reducing malnutrition and promoting financial inclusion.
In China, growth will moderate as the economy continues to rebalance toward consumption, services and higher-value-added activities, and as excess industrial capacity is reduced. Nevertheless, tighter labour markets will support continued growth in incomes and private consumption.
Among other large economies, prospects are strongest in the Philippines, where growth is expected to accelerate to 6.4 per cent this year, and Vietnam, where growth this year will be dented by the severe drought, but will recover to 6.3 per cent in 2017. In Indonesia, growth will increase steadily, from 4.8 per cent in 2015 to 5.5 per cent in 2018, the report says, contingent on a pickup in public investment and the success of efforts to improve the investment climate and increase revenues. In Malaysia, however, growth will fall sharply, to 4.2 per cent in 2016 from 5 per cent last year, because of weak global demand for oil and manufactured exports.
Over the longer term, the report highlights four areas where policy measures can promote inclusive growth. First, it recommends that China build on its past success in reducing poverty by improving access to basic public services for the rural population, and for the still growing number of migrants to the cities.
Second, other countries in the region need to fill infrastructure gaps by rebalancing public expenditure, increasing public-private cooperation and improving the efficiency of public investment management.
Third, the report urges policymakers to address widespread malnutrition. High levels of childhood undernutrition persist in many countries, even relatively affluent ones, and lead to health and cognitive deficits that are difficult to reverse. The report recommends coordinated measures across a range of areas, including early childhood development programmes and micronutrient interventions.
Finally, the report recommends that countries harness the potential of technology in transforming financial services and increasing financial inclusion. The region is technologically advanced, with a high level of mobile phone penetration, but lags in access to financial services. To reap the gains from financial innovation, countries will need to strengthen legal and regulatory frameworks and enhance consumer protection.
Bao Chau
Vietnamese
