FTAs can keep economy on track

Last week, the World Bank issued its East Asia and Pacific Economic Update, in which it reduced its projection for Vietnam’s growth rate in 2016. The January estimate of 6.6% was reduced to 6.2%.

“The moderate growth rate of 6.2% is due to slower private consumption and investment growth, natural disasters, and slower exports,” said Sudhir Shetty, chief economist of the World Bank’s East Asia and Pacific region.

“Local consumption remains weak, while the government is tightening public spending, which is one of the keys to growth,” he said. “Notably, Vietnam’s agriculture has also been seriously affected, stunting growth.”

The Ministry of Agriculture and Rural Development stated that about 10% of 1.5 million hectares of rice planted in the winter-spring crop (February-June) in Mekong Delta was affected by drought. Meanwhile, saline intrusion has damaged about one million tonnes of rice.

According to the World Bank, Vietnam’s agricultural sector is expected to grow just 1% this year, down from 2.4% last year. The industrial sector is projected to climb 9% this year, down from 9.6% last year.

In addition, since early last year, Vietnam’s exports have been dropping in volume. Export growth moderated to 8% in 2015, down from 13.8% in 2014. In this year’s first quarter, the growth rate is 4.1%, compared to a rise of 6.9% for the same period last year.

Despite these tapering figures, the World Bank remains upbeat about Vietnam’s economic prospects, saying that the predicted 6.2% would still be fair higher than the average of 4.8% in many developing nations in the East Asia and Pacific region.

“Among the large developing Southeast Asian economies, the Philippines and Vietnam have the strongest growth prospects,” Shetty said. “Vietnam will see continued strong growth in domestic demand and manufacturing exports. The baseline outlook for 2016 is positive on balance.”

Sandeep Mahajan, a lead economist from the World Bank in Vietnam, said that the free trade agreements-including the Trans-Pacific Partnership (TPP)-would bring about huge trade and investment opportunities for Vietnam and its partners.

The World Bank’s preliminary estimates suggest that the TPP could add about 8% to Vietnam’s GDP, 17% to its real exports, and 12% to its capital stock, for the 2015-2035 period.

The estimates indicate that the largest area of benefit from the TPP in relation to GDP comes from the impact of tariff reductions (52% in 2035), followed by the reform of non-tariff measure impacts (32%), and finally, liberalisation of services restrictions (16%). Manufacturing exports, comprising 58.1% of Vietnam’s 2015 real exports, are expected to increase 30% during 2015-2035.