WB upbeat about Vietnam outlook despite slight dip in growth

In its bi-annual report on Vietnam issued on Monday the bank said the economic expansion is driven by a weaker external demand and continued tightening of credit and fiscal policies.

It forecast GDP growth would slow down in the next two years to around 6.5 percent. "Despite these signs of a cyclical moderation in growth, Vietnam's outlook remains positive."

Vietnam’s GDP growth topped 7.08 percent last year, according to the General Statistics Office, the highest growth the country has experienced since 2008 that helped it retain its status as one of world's best performing economies.

"Recent slower growth reflected the repercussions of unfavorable external factors on key economic sectors. The outbreak of African swine fever and a decline in international prices dampened agricultural outputs while weaker external demand moderated growth of the export-oriented manufacturing sector," the World Bank said.

However, the service sector has performed well, signaling sustained buoyancy in domestic demand and especially private consumption.

The pressure on inflation remained relatively low. The country's consumer price index (CPI) is forecast to reach 3.7 percent this year, below the official inflation target of 4 percent.

The World Bank stated that Vietnam’s trade balance has made improvements thanks to vibrant FDI and relatively stable exchange rate.

Vietnam drew FDI worth $16.74 billion in the first five months of the year, the highest in the period since 2015. The registered FDI, which includes newly-registered capital, capital supplements and stake acquisitions, represented an increase of almost 70 percent year-on-year.

The country’s public debt is projected to fall to 58.3 percent of GDP this year thanks to disciplined fiscal policy.

The World Bank said that Vietnam would benefit from boosting structural reforms and improving investor sentiment thanks to new free trade agreements and global trade movement. However, the risk will also increase if trade tension escalates and the global economy declined more sharply than expected, as a result Vietnam’s main trading partners will be affected, or the country cannot maintain structural reforms.

"Vietnam needs to prepare to adjust macroeconomic policies in case some of these risks materialize and lead to a deeper than expected downturn," said Ousmane Dione, the World Bank's country director for Vietnam.

"Vietnam will also continue to push for deeper structural reforms, enhance export competitiveness and further deepen trade integration through bilateral and regional agreements," he said.

Earlier this year, Fitch Solutions, an arm of Fitch Ratings, said in a report it expects Vietnam’s GDP growth to slow to 6.5 percent in 2019 in line with a wider trend of slowing global growth, but added the country would remain one of the fastest growing economies in Southeast Asia.

The Asian Development Bank (ADB) estimates the country’s GDP for 2019 at 6.8 percent while Standard Chartered Bank forecast that the country is likely to reach GDP growth of 6.9 percent this year.