The Asian Development Bank (ADB
) has revised down its GDP
growth forecast for Vietnam to 6.0% in 2016 and 6.3% in 2017 due to drought in the Mekong and Central Highlands regions and low global commodity prices eased economic growth in the first half of the year.
The country’s inflation projection has also been lowered to 2.5% for this year and revised up to 4.5% in the coming year, according to the bank’s Asian Development Outlook Update (ADOU) released Tuesday.
With this downward revision, Vietnam’s growth rate will come fifth in the Southeast Asian region, after Myanmar, Cambodia, Laos and the Philippines.
In March this year, ADB put Vietnam’s economic growth at 6.7% in 2016, the same as in 2015, and 6.5% in 2017.
Versus a slowdown in the agricultural output, other sectors have grown strongly, said ADB Country Director for Vietnam Eric Sidgwick.
“Manufacturing expanded by double-digits as new foreign-invested factories ramped up production, while services picked up as a result of rising domestic trade, growing bank lending and a 25% jump in tourism arrivals,” Sidgwick noted.
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 slight recovery in agriculture and accelerating disbursements of capital expenditure on national infrastructure programs, said the report.
The report noted that trade performance remains a bright spot for Viet Nam’s economy. In the first half of 2016, the country produced a large merchandise trade surplus equal to estimated 8.2% of GDP. This outcome was a big improvement on 2015 and reflects continued growth in exports while import demand has eased.
“Though the country’s strong trade performance is expected to continue, it may be exposed to further slowdown in major industrial economies or unexpectedly low growth in China, an increasingly important trading partner,” added Sidgwick.
The report stressed that while Vietnam’s economy is performing reasonably well against a challenging back-drop, a number of issues will need to be addressed to ensure growth remains sustainable.
A recent surge in bank lending increases the importance of efforts to tighten regulations to prevent a rise in financial sector risks.
In addition, to ease public debt pressures, a growth-friendly fiscal consolidation is needed, including a rationalization of recurrent expenditure and tightening of the public sector wage bill. Administration costs as a share of total state budget spending have risen from an average of 8% between 2007 and 2009 to 11% between 2013 and 2016.