Vietnam is set to continue its strong economic performance, with GDP growth forecast to rise to 7.1 per cent this year before easing back to 6.8 per cent in 2019, according to a report released by the Asian Development Bank (ADB) on April 11.

The report noted that growth will be led by vigorous export expansion, rising domestic consumption, strong investment fueled by FDI, and a strengthening agriculture sector, said Mr. Eric Sidgwick, ADB Country Director for Vietnam.

The ADB forecasts that inflation will continue to edge upwards but only as long as stable monetary policies are maintained and credit quality is closely monitored. “We anticipate that consumer prices will remain broadly stable overall,” he said.

It also expects CPI to reach 3.7 per cent this year and 4 per cent in 2019, as strong domestic demand and high bank lending are only partly offset by stable domestic food and transportation costs and smaller increases in administered prices.

A broad-based increase in the government’s revenue effort in 2017 helped curtail the budget deficit and reduce total public debt to 61.3 per cent of GDP, from 63.6 per cent of GDP a year earlier. This fiscal consolidation combined with moderate inflation should provide for continued macroeconomic stability.

With rising domestic consumption and given Vietnam’s heavy reliance on imports of intermediate goods to fuel exports, the report noted, the current account surplus is projected to narrow to 2.5 per cent of GDP this year and 2 per cent in 2019.

Strong FDI and portfolio inflows should help to bolster the capital account surplus, however, and allow for a relatively stable exchange rate and foreign exchange reserves position.

Finally, the report showed that workforce has been key growth driver. Vietnam’s abundant, well-educated and flexible workforce has been vital for its economic success.

Since 2012, manufacturing has absorbed around 400,000 workers per year. Vietnam’s population is already starting to age, and by current estimates the workforce will start to shrink by 2035.

“Vietnam has been able to mobilize an abundant supply of young, well-educated workers to attract foreign investment into labor-intensive manufacturing over the last decade,” said Mr. Sidgwick. “However, as the Vietnamese economy becomes more sophisticated, a gap between worker qualifications and business needs has emerged and is widening. If not addressed, this skills gap could become a major obstacle to Vietnam’s development aspirations.”

VN Economic Times