Think Tank Puts Vietnam’s 2018 GDP Growth at 6.65%, Points out Weaknesses

Tuan Minh

16:13 17/01/2018

BizLIVE - The think tank has made cautious forecast for Vietnam's economic growth this year and pointed out shortcomings that need urgent treatment.

Think Tank Puts Vietnam’s 2018 GDP Growth at 6.65%, Points out Weaknesses

VEPR Director Nguyen Duc Thanh. Photo credit: VEPR

Cautious Projections
Vietnam’s economic growth is likely to come at 6.65% in 2018 as a large number of internal weaknesses have not been dealt with radically, the Hanoi-based Vietnam Institute for Economic and Policy Research (VEPR) has said in a quarterly report.
The growth pace is set to pick up throughout the year, with the rate forecast at 6.02% in the first quarter (Q1), 6.41% in Q2, 7.08% in Q3 and 7.27% in Q4, VEPR Director Nguyen Duc Thanh said at the launch of the report in Hanoi on January 16.
Inflation is projected to range between 4.03% and 4.69% by quarter, according to the report.
The Vietnamese government aims to grow the economy by 6.7% this year, lower than higher-than-expected 6.81% in 2017, while inflation will be curbed at 4%, compared to 3.53% last year.
“The predictions have been made cautiously. Vietnam’s GDP growth cannot repeatedly higher year after year if it lacks sustainable improvement,” the economist noted.
Overblown 2017 Growth?
Amid talk that Vietnam’s GDP growth could have been higher than its real performance, the Hanoi-based think tank examined the growth rate with its own-designed Vietnam Economic Performance Index (VEPI). The index is calculated based on energy consumption, import-export turnover, credit growth and industrial production.
“We look out to other drivers of growth that are more stable and not overly dependent on praiseworthy figures released by the General Statistics Office (GSO). The results show that VEPR’s figures are lower than the GSO’s,” Thanh said.
Like those announced by the GSO, Vietnam’s economic growth measured by the VEPI accelerated in the last two quarters, but at a slower pace. For example, the VEPI-measured growth was 7.28% in Q4, but lower than the GSO’s corresponding 7.65%.
“Lower VEPI measurements indicate that nominal GDP growth was higher than the real figures and inconsistency of statistics”, the report noted.
“That also shows that Vietnam’s economic expansion was abnormal in the second half of 2017. In addition, the figures released by the GSO could be higher than the real performance,” Thanh noted.
A number of Vietnamese economists have voiced concerns that authorities and local media have exaggerated the country’s economic performance in 2017, saying that the overall picture was not as rosy as media has painted.
Speaking at a workshop held by BizLIVE on January 5, Tran Dinh Thien, director of the Vietnam Institute of Economics, acknowledged the government’s economic achievements but local press overblew them. He also called for caution and further reforms this year.
Headwinds Await Ahead
Despite recognizing the government’s business-friendly efforts, the report has pointed out long-standing problems that will hinder economic performance if not radically handled.
First, productivity growth has not been a driver of Vietnam’s economic growth. Vietnam’s labor productivity is at the bottom among regional peer, just one-fourteenth Singapore’s, one-sixth Malaysia’s, and one-third Thailand’s.
“In the context of the benefits of “golden” demographics fading away, if the country does not promptly take measures to lift productivity in the near term, Vietnam will find it hard to maintain growth momentum presently. Further, the advantage of the cheap labor cost will diminish due to the Fourth Industrial Revolution,” says the report.
Second, fiscal deficit and rising public debt will remain major problems that hamper the local economy.
As Vietnam has become a middle-income economy and graduates from official development assistance (ODA), it will bear higher costs from foreign loans. Thus it will have to rely on domestic resources for growth.
Third, heavy reliance on the world economy and the foreign-invested sector poses potential downside risks to Vietnam’s economy, particularly amid geopolitical uncertainty and rising protectionism.
“Prudent Optimism”
Senior economist Vo Tri Thanh, former deputy director of the Central Institute for Economic Management (CIEM), said he would be prudently optimist about the local economy this year as the .
Volatility will rise for the world economy this year given geopolitical risks, protectionism, China’s piling debt, and stock markets facing correction risk by the end of 2018 or early 2019.
While in Vietnam, inflation is poised to pick up due to hike in centrally-administered prices such as healthcare and electricity. In addition, local banks will focus on resolving bad debt and increasing their financial capacity.