Stronger export growth and a continued rise in investment confirm that Vietnam’s GDP growth will go back to above 6.5 per cent in 2017 after a slowdown to 6.2 per cent in 2016, experts from the Institute of Chartered Accountants in England & Wales (ICAEW) have forecast.

According to its  South East Asia  Q2 report, launched in Ho Chi Minh City on June 20,  inflation remains at a positive level for investment, staying close to 4 per cent in 2017 - 2019 thanks to stronger demand and lower State-sector subsidies. However, risks to the forecast growth are still present.

Building on a strong performance in the first quarter, the outlook for the ASEAN economy remains cautiously optimistic. The region’s growth was driven mainly by Malaysia and Thailand, while momentum eased in Singapore, Philippines, Vietnam, and Indonesia. 

Overall, Asia’s growth momentum will cool under the influence of the widespread slowdown in exports and steady domestic demand - two essential factors underpinning its strong performance in the first quarter.

Rising FDI levels are fundamental to Vietnam’s growth. In 2016, FDI rose by 9 per cent to $24.4 billion, affirming Vietnam’s long-term market growth and its positioning as a low-cost source for textiles and other industrial products in the region.

The growth of the private sector should continue as infrastructure programs are put in place to enable expansion in the transport, communications, and energy sectors. Vietnam’s medium-term growth is on track to reach an above-trend 6.7 per cent in 2017-2018, the report noted.

However, risks to the forecast growth continue to pose substantial concerns. The fiscal deficit remains high, with ratios of public and foreign debt to GDP already at 64.7 per cent and 53.6 per cent, respectively, at end-2016.

Measures available to correct the existing deficit, such as budget cuts and tax increases, risk slowing GDP growth and may not even address the deficit if such measures fall on public investments instead of consumption.

“Vietnam’s growing role as an outsourcing and low-cost food and industrial supplier will continue to drive robust export growth,” said Mr. Mark Billington, Regional Director, ICAEW Southeast Asia. 

“We expect domestic demand to remain the primary driver of growth, given the rapid but unstable recovery in external global trade. ASEAN nations will need to focus on providing a more attractive business investment environment. More fiscal stimulus to support domestic demand is one way this could be achieved.”

“Following the positive Q1 outcomes, we have increased our growth outlook for some Asian economies, including Malaysia and Thailand,” said Ms. Priyanka Kishore, ICAEW Economic Advisor & Oxford Economics Lead Economist. 

“However, we are cautious in our expectations, owing to various key restraints on the region’s Q1 growth boost. We expect Southeast Asia’s growth to slip back towards 4.5 per cent by Q4 2017, with full year GDP growth slightly higher than 2016.”

In addition, the banking sector was under-capitalized by almost $10 billion (4.6 per cent of GDP) at end-2016 on Moody’s calculations. 

This can leave banks vulnerable if non-performing loans rise further, as some banks’ ratio of loans to capital has already been lowered following a rapid loan growth period.

VN Economic Times