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Vietnam's economy is now expected to grow 6 percent this year, the Asian Development Bank said in a new report on Tuesday, revising its June forecast of 6.7 percent.
The Manila-based lender said growth could pick up to 6.3 percent next year, with a recovery coming in the remaining months of 2016.
It has revised down its forecast after Vietnam’s economy cooled to an estimated 5.52 percent in the first half of this year. The agriculture sector and mineral mining were hit the hardest.
Adverse weather conditions, notably the worst drought and saltwater intrusion in almost a century, dragged the agriculture sector down to negative growth of 0.18 percent.
“Drought is ravaging the Central Highlands and the Mekong Delta, and world commodity prices remain low, they have slowed the economy in the first half of the year,” said Eric Sidgwick, ADB Country Director.
“But we have seen strong growth in other sectors. Manufacturing sector reached two-digit rate as foreign-invested factories boosted production. Growth in services sector was fuelled by an expanding domestic demand and foreign tourism potential,” the ADB director added.
The ADB forecast an economic recovery for Vietnam in the final months of the year. The bank said the foreign capital inflows would accelerate and that agricultural sector could make a slight recovery from the downward spiral in the first six months.
As the government is set to provide more grants for roads, bridges and other infrastructure, additional spending on infrastructure projects could boost flagging economic growth.
“We are closely watching economic indicators in the third quarter,” said an executive from a foreign investment fund. “In case the GDP failing to reach the growth rate of 6 percent, there would be no catalysts to boost the stock market”.
The ADB also urged Vietnam to embark on tough spending cuts to reduce the budget deficit. Statistics show that government’s administrative spending, which includes payroll for state employees, has soared to 11 percent of total spending in the 2013-2016 period as opposed to 8 percent during 2007-2009.
Vietnam’s trade deficit in the first nine months stood at $2.55 billion, which according to the ADB is still enough for the country to stabilize the dong against the U.S. dollar.
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