FDI continues to inspire big growth expectation

Under Asian Development Bank (ADB) forecasts released last week, the Vietnamese economy will climb 6.5% this year and 6.7% in 2018.

“These rates are quite positive,” ADB country director Eric Sidgwick told VIR. “Over this period, growth will be driven by continued high foreign direct investment (FDI), rising domestic consumption and demand, and an expected modest recovery in both agriculture and mining.”

According to ADB, manufacturing will be boosted by the continued opening of new foreign-invested factories on the back of a record FDI disbursement of US$15.8 billion last year, up 9% year-on-year.

In this year’s first quarter, the economy received a total of US$27.12 billion in newly-registered and expanded capital from local enterprises. Meanwhile, foreign firms posted US$7.71 billion in newly-registered and added capital, and in capital contribution and share purchasing-up 77.6% year-on-year.

Manufacturing and exports should expand further with the growth of the US economy and the opening up of more trade opportunities with the European Union through a new free trade agreement expectedly effective in early 2018.

“Construction will continue to benefit from high FDI disbursements to set up new factories, a strengthening housing sector, and continued high public investment in transport and energy”, said ADB country economist Aaron Batten.

On the demand side, Batten said, private consumption is expected to expand robustly. Consumer sentiment remains buoyant, as indicated by a November 2016 survey showing that 43% of businesses expected retail sales to improve in 2017 and another 39% expected conditions to remain stable.

“Ongoing reforms to allow greater foreign ownership of domestic stocks and state-owned enterprises, along with reforms to facilitate private participation in building infrastructure, should encourage private investment”, Batten said.

Also last week, the World Bank released its latest forecast about Vietnam’s economy, showing its optimism with a projection of 6.3% for 2017, and 6.4% for both 2018 and 2019.

According to the World Bank, the rate of 6.3%-6.4% is “quite positive” considering that many nations in the world are expecting lower growth and economic instability.

The International Monetary Fund (IMF) forecasts Vietnam’s growth rate this year at 6.2%. The IMF’s other regional forecasts are 4.9% for ASEAN-5 (Indonesia, Malaysia, the Philippines, Thailand, and Vietnam), 5.3% for Indonesia, 4.6% for Malaysia, and 3.3% for Thailand.

In 2018, IMF forecasts another 6.2% growth for Vietnam. The prediction ranges to 5.2% for ASEAN-5, 5.5% for Indonesia, 4.7% for Malaysia, and 3.1% for Thailand.

TradingEconomics, which provides more than 300,000 economic indicators for 196 countries, last week also predicted that Vietnam’s economy would increase 6.6%, 6.2%, and 6.4% in the second, third, and fourth quarters, respectively.

Also last week, the Vietnam National University’s Vietnam Institute for Economic and Policy Research projected that the country’s economy will climb 5.7%, 6.5%, and 6.6% for this year’s second, third and fourth quarters, respectively. Their projection is 6.1% for whole-year growth.

“Though our forecast of only 6.1% and international organisations’ projection of 6.3%-6.5% are lower than the government’s 6.7% target, these rates are quite positive amid local on-going production recovery”, said institute head Nguyen Duc Thanh.

Still, ADB warned that despite solid growth, Vietnam will find it hard to reach upper-middle income by 2030.

“If Vietnam is to achieve upper-middle income status quickly, then deeper reforms are needed. At current growth rates, Vietnam will not reach upper-middle income until around 2031. Lifting growth by 2% would accelerate that to 2026,” Batten said.