ADB raises Vietnam GDP forecast to 6.5%

In the ADB's previous forecast in March, it expected the economy to expand 6.1% this year and 6.2% next year.

The ADB identified three key drivers of the higher economic growth in Vietnam, said Aaron Batten, the ADB's Country Economist – one of the report's authors.

Firstly, foreign direct investment disbursement reached a record level in the first six months of this year, approximately US$8.5 billion. This boosted manufacturing and exports, he said.

Secondly, Vietnam was also benefiting from rising consumer spending during the first half of this year. Higher spending lifted retail sales while credit growth was also exceeding targets, he said.

The third was the Government's pro-growth monetary and fiscal policies, he said.

The economic growth was also supported by low inflation, he said.

According to the ADB, annual inflation slowed to 0.6% in August from 23% in August 2011. Lower global oil and commodity prices has held down transportation and food prices.

It also noted that manufacturing output growth was particularly strong, increasing by 9.9% in the first half of the year as foreign-invested factories boosted production of goods for export.

Construction accelerated to grow by 6.6% during the first half of 2015, owing to a modest recovery in the property market and public investment in infrastructure.

The bank said after a challenging few years, the financial sector also appeared to be picking up momentum. Credit growth now looked set to exceed official targets during 2015.

Government policy had also been aided by lower global commodity prices which had helped to contain price growth, lift disposable incomes and lower business costs.

Challenges

However, the report also named challenges for Vietnam's economy.

Slowing economic growth in China, one of Vietnam's largest trade and investment partners, might dampen trade prospects while continued low global commodity prices would reduce export earnings for key sectors like oil and agriculture, it said.

Surging imports coupled with lower oil revenue were leading to deterioration in the current account surplus, and the El Nino weather system was predicted to reduce the agriculture output in 2016.

"To mitigate these challenges, it will be vital for the country to continue to deepen structural and financial sector reforms, increasing productivity growth and boosting Vietnam's international competitiveness," said Eric Sidgwick, ADB Country Director for Vietnam.