Following a stronger than expected performance in 2015, the Asian Development Outlook report forecasts the Vietnam’s economy will remain stable in 2016 with growth of 6.7% followed by a modest slowing of growth to 6.5% in 2017.
The report notes that Vietnam’s economic growth is being driven by foreign direct investment, strengthening domestic consumption and demand, and pro-growth policy settings. However, while the economy is performing reasonably well, Vietnam does face significant short and long-term challenges.
“In the short-term, the government must navigate the impacts of a slowing global economy, while at the same time rebuilding the macroeconomic buffers that would allow Vietnam to be resilient to any future economic shocks,” said Eric Sidgwick, ADB Country Director for Vietnam. “Over the long-term, greater efforts are also needed to address Vietnam’s low productivity growth, and to support domestic firm’s ability to integrate into global value chains.”
The report emphasises the importance of deepening the process of state owned enterprise reform, to remove the distorting impact the firms are said to have on the economy and its competitiveness. The government should also continue to take action to strengthen the banking system including a clear plan for resolving non-performing loans, as this continues to stifle the creation of an efficient and inclusive financial sector.
While Vietnam should be a major beneficiary of recent free trade agreements, the country will also have to deal with, what the Asian Development Bank euphemistically calls “significant adjustment costs”. As the economy opens up to increased competition, and more stringent export standards, domestic firms will face increasing commercial pressures.
“To ensure that the economy is able to maximise the benefits from the agreements, the government must move in parallel to create a more productive and innovative economy that can more readily adapt to increasing competition,” added Sidgwick.
