• Global growth is projected to pick up to 3.4% in 2015 and 3.5% in 2016, propelled by high-income countries. Developing countries will benefit from these tailwinds, with growth projected to increase from 4.8% in 2014 to 5.5% in 2016.
• Regional gross domestic product (GDP) growth is expected to slow down slightly to 7.0% by 2016, about 2 percentage points slower than the pre-crisis boom years but broadly in line with potential.
• Improved global conditions and soft domestic demand have allowed Vietnam to further consolidate gains in macroeconomic stability. Headline inflation fell from a peak of 23% in August 2011 to about 5% in June 2014.
• A widening fiscal deficit, however, presents growing macro challenges. The fiscal deficit target of 4.8% of GDP was overshot by 0.5 percentage points in 2013, with a similar outcome expected in 2014. The public debt situation remains sustainable nonetheless, albeit susceptible to systemic shocks.
• Vietnam’s economic growth remains moderate and continues to come in below its long-term trend. GDP growth was estimated at 5.4% in 2014, is projected to not exceed 5.5% before 2016. In the short run, this is linked to soft domestic demand. Longer-term trend growth remains subdued on account of structural problems.
• Despite a relatively high labor force participation rate and a low official unemployment rate (around 2%), labor market trends give some cause for concern. The unemployment rate is considerably higher among skilled workers, reflecting a mismatch between supply of skills and market demands.
• The banking sector is tenuously stable. With a focus on addressing non-performing loans, banks remain cautious in expanding lending despite strong growth in deposits.
• The government equitized 74 state-owned enterprises (SOEs) in 2013 (thrice the number in 2011 and 2012), and the momentum continued in the first quarter of 2014.
• Medium-term outlook is for moderate GDP growth with following macroeconomic risks:
(i) Domestic private sector demand remains sluggish and highly susceptible to any negative news;
(ii) The baseline assumes no escalation in the tensions with China;
(iii) The banking sector remains susceptible to sudden shifts in depositor confidence and unexpected news on SOE profits or real estate price movements.
This edition of the Taking Stock report includes a special focus on inequality in Vietnam. Click here to view key findings of that special focus.