ADB forecasts Vietnam’s economic growth to surpass last year’s decade-long high

By Minh Nga   April 11, 2018 | 01:19 am PT
ADB forecasts Vietnam’s economic growth to surpass last year’s decade-long high
Women work at a furniture factory outside Hanoi, Vietnam, April 5, 2018. Photo by Reuters/Kham
But major risks remain, including rising global trade protectionism and a widening skills gap. 

The Asian Development Bank thinks that Vietnam’s economy will expand by 7.1 percent this year, which if true would be the highest growth rate recorded by the country since 2008.

“Aided by able macroeconomic management, economic growth will spurt in 2018, with Vietnam becoming one of the strongest performers in the region,” the Manila-based lender said in its Asian Development Outlook (ADO) 2018 released on Wednesday.

The country’s economic growth will be driven by manufacturing and export expansion, rising domestic consumption, strong investment fueled by foreign investors and domestic firms, and an improving agriculture sector, Eric Sidgwick, ADB country director for Vietnam, was quoted in the report as saying.

While highlighting Vietnam’s strong growth potential, the report pointed out several major risks to the outlook, including rising global trade protectionism.

Vietnam’s annual trade now exceeds 185 percent of GDP, making it the second most trade dependent economy in Southeast Asia, behind Singapore.

A major disruption in trade between two of Vietnam’s largest trading partners, the U.S. and China, could have spillover effects on economic growth, the report noted.

Earlier this month, the U.S. proposed 25 percent tariffs on more than 1,300 Chinese industrial and other products, ranging from flat-screen televisions to electronic components.

China shot back 11 hours later with a list of proposed duties on $50 billion worth of American imports, including soybeans, aircraft, cars, beef and chemicals, Reuters reported on April 5.

The report also recommends greater efforts to address Vietnam’s skills gap to ensure growth remains sustainable and equitable.

“Vietnam has been able to mobilize an abundant supply of young, well educated workers to attract foreign investment into labor-intensive manufacturing over the last decade,” Sidgwick said.

“However, as the Vietnamese economy becomes more sophisticated a gap between worker qualifications and business needs has emerged and is widening. If not addressed, this skills gap could become a major obstacle to the country’s development aspirations,” he said.

Vietnam’s economy grew by 7.38 percent in the first quarter of this year, the highest rate in a decade thanks to industry and construction.

The Ministry of Planning and Investment has forecast two scenarios for the country's economic growth this year.

The rate will either be 6.7 percent as targeted by the legislative National Assembly, or 6.8 percent if the manufacturing and processing industry thrives for the rest of the year.

Vietnam’s GDP expanded by 6.81 percent last year, the highest rate in a decade.

The nation will maintain its current economic growth until 2020 by giving private firms more room to grow and driving positive change to rural areas, said Vietnam’s prime minister in an interview with the Financial Times and Nikkei last month.

To continue this success, Phuc said Vietnam will facilitate an economic environment conducive for private firms to thrive, citing how these companies account for 43 percent of the nation’s GDP, making them the vanguards of Vietnam’s economic growth.

The Vietnamese government will help by developing new policies, distributing resources, encouraging the creation of new companies and giving firms more opportunities to utilize modern technologies, said Phuc.

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