Vietnam’s Economic Recovery Firms up with A Positive Outlook

December 2, 2015

Latest WB report reflects resilient domestic demand and robust export-oriented manufacturing

Hanoi, December 2, 2015 – Vietnam’s economy has weathered the recent turbulence in the external environment fairly well, says the World Bank’s Taking Stock report, released today, with GDP growth expected to come in at 6.5 percent this year. The performance is underpinned by further recovery in domestic demand, in turn reflecting robust private consumption and investment growth.

“Stronger domestic demand, robust export performance, low inflation and improved confidence have enabled Vietnam to create firmer foundations for mid-term growth.”
says Victoria Kwakwa, the World Bank Country Director for Vietnam. “This is a good time to solidify macroeconomic stability and rebuild policy buffers including through decisive efforts to rein in fiscal imbalances and tackle remaining vulnerabilities in the banking sector.”

Better macroeconomic conditions helped maintain stability in the banking system, writes the report. On the external front, Vietnam’s export performance remains strong, with total export turnover increasing by 9.2 percent from the same period last year, mostly thanks to strong performance of manufacturing exports, especially high technology products such as cell phones, electronics, and computers.

According to Taking Stock, the medium-term outlook for Vietnam remains positive, with growth projected to strengthen and inflation expected to remain low. However slow structural reform progress poses risks to medium-term growth prospects, while delays in implementing fiscal consolidation could undermine debt sustainability.

Against the backdrop of these uncertainties, the report suggests that sound macroeconomic management remains crucial to rebuild policy buffers and safeguard against future shocks. Fiscal consolidation, structural reforms, and a further build-up of reserves could help reduce vulnerabilities.

The report also features a special section on the Trans Pacific Partnership Agreement, in which it argues that the TPP is expected to generate considerable benefits for Vietnam.

“The recently concluded TPP  will not only improving market access, but will also serve as a critical anchor for the next phase of structural reforms in Vietnam.” says Sandeep Mahajan, Lead Economist for the World Bank Vietnam.

Among the current TPP signatories, Vietnam—as the economy with the lowest per capita GDP—has unique comparative advantages, particularly in labor-intensive manufacturing. On the economic impacts, simulations suggest that the TPP could add as much as 8 percent to Vietnam’s GDP, 17 percent to its real exports, and 12 percent to its capital stock over the next 20 years. Despite various implementation challenges, the impact of the TPP on Vietnam is expected to be positive.  

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