VINACHEM

The World Bank (WB) projected Vietnam’s economy would expand at a lower-than-expected pace and beneath its potential.

Speaking at a press briefing in Hanoi City on October 6 where the WB launched the East Asia Economic Update report, the international lending institution estimated the nation’s gross domestic product (GDP) growth at around 5.4% at the end of this year and possibly not more than 5.5% before 2016.

The WB’s projections were lower than the targets set by the Government.

Nguyen Van Nen, Minister and Chairman of the Government Office, told a regular press conference in the capital late last month said the local economy posted relatively stable growth between January and September.

Though no breakthroughs have been made so far, the GDP growth of 5.8% is obtainable this year, Nen said. Some cabinet members even expected a GDP growth rate of 5.9%, citing the Government’s pro-business measures.

At on October 6’s press briefing, the WB said the slowed GDP growth rate is the consequences of weak domestic demand. In the long term, economic growth would be driven by various factors such as the restructuring of State-owned enterprises and banks, policy-related issues that are hindering private investments, shortages of skilled workers, and a big gap between infrastructure and logistics services.

Sandeep Mahajan, WB lead economist for Vietnam, said the nation’s GDP growth is supported by foreign direct investment disbursements, the performance of foreign-invested enterprises, and 15% export growth this year despite weak domestic investments and low credit growth at banks.

Meanwhile, industrial production especially from the domestic sector remains a disadvantage. Low confidence and consumption in the domestic sector continue to dent the country’s economic growth, Mahajan said.

According to the WB, macro-economic stability can be strengthened further this year on the back of low inflation. Low GDP growth has facilitated monetary policy easing but credit is still obstructed by the balance sheets of banks and subdued domestic demand.

From January to July, around 37,600 local enterprises shut down or suspended operations, rising by 10% year-on-year. Besides, retail growth, an index measuring the buying power of the private sector, fell to 5.7% in June, the WB said.

The ratio of domestic private investment to GDP stood at 10.7% in the first quarter of this year, lower than 13.9% in 2010.