AMRO: 2019 GDP growth at 6.6%
The ASEAN+3 Macroeconomic Research Office (AMRO) last week held its Annual Consultation Visit to Vietnam and made a preliminary assessment that Vietnam’s economy is expected to grow at 6.6 per cent in 2019 with inflation contained at below target of 4 per cent.
“Vietnam’s economic growth continued to be robust in 2018 on the back of strong growth in manufacturing and services, exceeding the target of 6.7 per cent,” said Dr. Seung Hyun Hong, AMRO Lead Specialist. “As growth momentum is expected to remain strong, authorities should focus on strengthening financial soundness, continuing fiscal consolidation efforts, and accelerating structural reforms.”
Manufacturing growth was driven by the electronics sector while the services sector was propelled by the wholesale and retail industry and boosted by tourism. Management of administered prices helped dampen inflationary pressure in 2018. GDP growth in 2019 is expected to be sustained by strong growth in manufacturing and services.
Vietnam’s external position continued to strengthen, benefiting from robust export performance and increased foreign investment. Greater flexibility in exchange rate management also improved the economy’s resilience to external shocks, while allowing the State Bank of Vietnam (SBV) to build up its reserves buffer. Downside risks are mainly external, stemming from the ongoing US-China trade conflict and policy uncertainties in several advanced economies, which could lead to greater volatility in the financial markets and capital outflows.
The fiscal deficit was kept at 3.6 per cent of GDP in 2018 and is expected to remain stable in 2019, in line with the government’s fiscal consolidation target. Authorities’ continued efforts and reform initiatives, in line with the medium-term fiscal plan, are commendable. Continuing policy efforts to enhance revenue potential will be critical in the longer term, particularly to finance growing spending needs on development and social security in a sustainable way. Greater efforts are needed to improve spending efficiency while prioritizing expenditures to promote long-term growth potential.
Credit growth has moderated, in line with the SBV’s lower credit growth target. The SBV’s continued supervision of lending to certain sectors in the economy, such as real estate and construction, is warranted to mitigate the risk of an asset bubble. Recent progress in resolving legacy non-performing loans (NPLs) in several banks is commendable. Further efforts to speed up NPL resolution as well as bank recapitalization are strongly encouraged to improve the soundness of the banking system.
Continued structural reforms will help the economy address medium- to long-term challenges. Enhanced financial transparency would be greatly beneficial in expediting the progress of State-owned enterprise (SOE) equitization and divestment of State assets. Improving tertiary education and vocational training are needed to upskill the workforce and improve productivity, which will help facilitate the country’s ascent along the path of economic development.
The consultation visit provided AMRO with valuable insights and a deeper understanding of Vietnam’s macroeconomic and financial conditions. - VNN -