Vietnam’s growth target returns to 6.5% as FDI rises

The information was given at an event launching the latest Economic Insight 2017 - South East Asia Q2 report, organised by the Institute of Chartered Accountants in England and Wales (ICAEW) in Hanoi on June 21.

Priyanka Kishore, ICAEW economic advisor & Oxford Economics lead economist, said that rising foreign direct investment (FDI) levels are fundamental to Vietnam’s growth. 

In 2016, FDI went up by 9% to US$24.4 billion, affirming the country’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 programmes are put in place to enable expansion in transport, communications and energy sectors. Vietnams’ medium-term growth is on track to reach an above-trend 6.7% in 2017-2018 period.

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 64.7% and 53.6% at the end of 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.

In addition, the banking sector was undercapitalised by almost US$10 billion (4.6% of GDP) at end 2016 as per 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.

Mark Billington, regional director, ICAEW South East Asia, said, “Vietnam’s growing role as an outsourcing and low-cost food and industrial supplier will continue to drive robust export growth. 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,” Mark added.

Economic Insight - South East Asia is produced by Oxford Economics, ICAEW’s partner and economic forecaster. 

Commissioned by ICAEW, the report provides its 147,000 members with a current snapshot of the region’s economic performance. It undertakes a quarterly review of South East Asian economies, with a focus on Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

Founded in the UK in 1880, ICAEW is a world-leading professional membership organisation headquartered in London with offices internationally including Kuala Lumpur, Singapore, Vietnam and Indonesia. ICAEW connects with over 147,000 chartered accountants worldwide, providing this community of professionals with the power to build and sustain strong economies.