The World Bank
(WB) has trimmed its 2016 economic growth
forecast for Vietnam by 0.2 percentage point from its previous projections to 6.0%, citing the impact of a severe drought on agricultural production and slower industrial growth.
In the first half of this year, GDP growth slowed to 5.5%, compared to 6.3% growth a year earlier. The growth, however, was buoyed by a continued pick-up in the construction sector, driven by buoyant credit growth and a recovery in the real estate sector.
The service sector also accelerated, driven in particular by retail trade growth which benefited from sustained strength of domestic consumption.
“We expect GDP growth of 6% for the whole year 2016. Despite slightly softer growth this year, Vietnam’s medium term outlook remains positive,” says Achim Fock, acting country director for the World Bank in Vietnam.
A further weakening in the U.S. and EU economies (especially following the Brexit vote) and a sharper slowdown in China could dim Vietnam’s growth prospects, says the bank’s biannual report.
On the domestic front, slow progress in implementing structural reforms to boost productivity in both the state owned and private sector pose risks to medium-term growth prospects, while delays in addressing lingering non-performing loan problems in banking sector and fiscal consolidation could pose a risk to future macroeconomic stability and growth.
“Achieving sustained high growth will depend on Vietnam’s ability to continue and deepen structural reforms to boost productivity,” Achim Fock noted.
The WB predicted Vietnam’s annual inflation to pick up to an estimated 4% this year, from 3.5% forecast in April, due to increased domestic demand and adjustments in prices of centrally-administered services such as healthcare and education.
Vietnam’s 2017 GDP growth forecast stays intact at 6.3% while inflation is revised up to 4.5% from the previous estimate of 3.8%.
Accumulated fiscal imbalances remain a cause of concern, with the fiscal deficit estimated to have widened to about 6.5% of GDP in 2015. This caused the country’s outstanding public debt to rise to 62.2% of GDP, close to the ceiling of 65% of GDP.
“The government has made commitments to ensure public debt sustainability and rebuild fiscal buffers,” says Sebastian Eckardt, lead economist for the World Bank in Vietnam.
“It is important that this commitment is now followed through with concrete actions to balance the budget over the medium term. Efforts to rein-in fiscal imbalances will have to be balanced with reforms to create fiscal space to maintain investments in critical infrastructure and public services.”
Philip O’Keefe, lead economist for the World Bank, named rapid aging pace another concern for Vietnam.
While today there are only around 6.5 million people in Vietnam who are 65 years or older, this number is expected to almost triple to 18.4 million by 2040, according to the report.
“Population aging will have wide ranging implications. It will affect labor markets and pose new challenges for policy makers, employers and the population at large. Mitigating these impacts will require policy actions in labor markets, pension system and health care and long term care systems,” Philip O’Keefe stressed.