ADB lowers 2018 growth forecast for Việt Nam

HÀ NỘI — The Asian Development Bank (ADB) has projected Việt Nam’s economic growth will be 6.9 per cent this year, taking 0.2 percentage points off from their April forecast as exports, agriculture, construction, and mining are expected to slow in the second half of the year.

The ADB forecasts growth of 6.8 per cent for Việt Nam in 2019.

The Vietnamese economy continued to perform strongly in the first half of 2018, despite several setbacks, the ADB said in its Asian Development Outlook 2018 Update, which was launched in Hà Nội on Wednesday.

 “The economic performance was broad-based, driven by vigorous manufacturing expansion, bumper agriculture production, robust performance of services sector, resilient domestic consumption, and strong investment fueled by foreign direct investment (FDI) and domestic enterprises,” said Eric Sidgwick, ADB Country Director for Việt Nam.

According to the ADB’s report, Việt Nam posted 7.1 per cent gross domestic product (GDP) growth in the first half of 2018, up from 5.8 per cent in the same period last year.

On the demand side, rising income lifted private consumption growth to 7.2 per cent from 7 per cent a year earlier. Private investment remained robust, supported by high credit growth and strong FDI. Exports of goods and services rose by 15.7 per cent by volume in the first half of the year from 14.4 per cent a year earlier.

Most major sectors continued to perform solidly. Output from agriculture and allied activities grew by 3.9 per cent in the first half of this year, up from 2.7 per cent in the first half of 2017.

Industrial production expanded by 9.3 per cent in first half of the year, sharply higher than the 5.4 per cent expansion in the same months of last year.

Driven partly by a hefty rise in international tourist arrivals, the service sector posted nearly 7 per cent growth in the first half of the year, the same pace as in the first six months of last year. As tourist arrivals rose by 27.2 per cent in the first half, hotels and restaurants, transportation and communications, and wholesale and retail trade continued to be buoyant.

Strong growth put upward pressure on inflation, as did a hike in government-administered fees and higher international oil prices. Headline inflation inched up to 4.7 per cent year on year by June 2018 from the low of 2.5 per cent in June 2017, and average annual inflation in the first half of the year reached 3.3 per cent.

The balance of payments posted an estimated surplus equal to 8.4 per cent of GDP in the period, with the current and capital accounts both registering surpluses.

Bolstered by strong FDI and rising portfolio capital inflows, the capital account recorded a surplus equal to an estimated 7.9 per cent of GDP in the first half of 2018. FDI commitments reached US$16.2 billion from January to June, and disbursements an estimated $8.4 billion, up by 8.4 per cent year on year.

Prospect

The ADB forecasts Việt Nam’s economic growth will likely hold up well in the near term, buoyed by resilient domestic demand, improved business conditions and a stable macroeconomic environment. An anticipated increase in public capital expenditure in the second half of the year is expected to boost the growth in investment.

The economy, however, remains vulnerable to external and domestic challenges.

“Growth moderation in major economies such as China, the European Union and Japan could dent export opportunities for Việt Nam. Continued trade frictions between the US and the China could have spill-over impacts on Việt Nam’s external trade and FDI. Domestically, unfavorable weather could also undermine agriculture output and mining production,” Sidgwick told Việt Nam News.

Prospects for private consumption continue to be bright, while the outlook for private investment remains stable under the Government’s continuing efforts to improve the business environment and facilitate the opening of new businesses.

Acceleration in public capital expenditure in the second half of the year is expected to boost growth in investment.

Growth in merchandise exports is likely to moderate in the near term, although Việt Nam’s participation in various free trade agreements should support continued access to foreign markets for major exports.

Despite the downward revision for growth this year, inflationary pressures are likely to persist over the near term. The đồng has exhibited more weakness since July and could come under continued pressure as US interest rates rise and the dollar strengthens. Depreciation of the renminbi against dollar, if it continues, could further put pressure on the đồng, adding to inflation.

Moreover, the rise in international oil prices will raise the pressure on inflation, as would an upsurge in food prices. Food prices, with a weight of around a third in the consumer price index, have already risen by 2.3 per cent in the first eight months, reversing their declining trend in the same period last year. Average annual inflation is therefore forecast to edge up to 4 per cent in 2018 and further to 4.5 per cent in 2019, both projections higher than the previous forecasts.

As regards some recommendations to deal with the current trade war, Nguyễn Minh Cường, principal country economist for Việt Nam, suggested the country should improve the quality of the business environment and develop high quality infrastructure, especially in logistics. In addition, Việt Nam authorities should focus on diversifying the market in order to improve economic competitiveness.

“These solutions are effective for Việt Nam’s economy whether there is a trade war or not,” Cường told Việt Nam News. — VNS