World Bank forecasts Vietnam’s GDP growth of 6.7 percent hinh anh 1Illustrative photo (Source: VNA)

 Hanoi (VNA) –The World Bank (WB) on December 11 released its report “Taking Stock- An Update on Vietnam’s Recent Economic Development”, forecasting the country’s GDP to grow at 6.7 percent this year.

Over the medium term, growth is projected to stabilise at around 6.5 percent, and inflation is projected to remain low, says the bi-annual economic report on Vietnam.

Ousmane Dione, WB Country Director for Vietnam, said growth momentum picked up across major economies and global trade recovered in 2017, adding with incomes rising and poverty falling, Vietnam’s economy had another good year of strong growth and broad macroeconomic stability.

According the new WB report, stronger domestic demand, robust export-oriented manufacturing, and a gradual recovery of the agriculture sector are driving Vietnam’s economy, which expanded by 6.4 percent during the first nine months of the year compared to the same period last year. The manufacturing and service sector respectively grew by 12.8 percent and 7.3 percent during the same period.

Low inflation and rising real wages sustained buoyant domestic demand and private consumption, while the stronger global economy helped Vietnam’s export-oriented manufacturing and agricultural sectors. Job growth continued, with 1.6 million new jobs added in the manufacturing sector over the past three years, and 700,000 additional jobs in the construction, retail, and hospitality sectors, leading to higher aggregate labour productivity. Labour demand also contributed to rapid wage growth, with wages increasing by 15 percent cumulatively between 2014 and 2016.

Despite progress in resolving non-performing loans, risks remain, including the lack of robust capital buffers in some banks, especially amidst rapid credit growth.

Fiscal tightening is underway, and has led to a leaner budget deficit and containment of public debt accumulation. However, the decline in public investment – falling to 16 percent of total spending in the first nine months of 2017 compared with an average of 25 percent in recent years – may not be sustainable over time, as Vietnam needs significant investments in infrastructure to support future growth.

A slow-down in structural reforms could also impact the ongoing recovery, especially given the weaker growth in investment.  Enhancing macroeconomic resilience and structural reforms can lift Vietnam’s growth potential over the medium term.

Sebastian Eckardt, WB’s Lead Economist for Vietnam, said structural reform remains a central priority in view of tepid productivity growth. Building on progress already made, Vietnam can further lift productivity growth through investments in needed infrastructure and skills as well as deeper reforms of the business environment, SOE and banking sector, the WB expert added.-VNA