Economic forecasts paint rosy future

The Asian Development Bank (ADB) remains upbeat about Vietnam’s 2016 economic growth, and last week raised its September 2015 forecast of 6.6% to 6.7%. The Vietnamese government also set a target of 6.7% GDP growth in 2016. However, ADB also predicted that the economy’s growth would taper slightly to 6.5% next year.

In this year’s first quarter, the economy grew 5.46%, lower than the 6.12% for the same period last year. However, Eric Sidgwick, ADB country director for Vietnam, said that the low growth in this year’s first quarter was cyclical (due to limited production in the Tet festival) and would bounce back during the next quarters.

For example, last year, the economy grew from 6.12% in the first quarter to 6.47% in the second quarter, 6.81% in the third quarter, and 7.01% in the fourth quarter.

“Vietnam’s economic outlook remains sound,” Sidgwick said.

FocusEconomics, which features economic forecasts from the world’s leading economists, last week also projected that Vietnam’s economy would grow 6.7% in 2016 and 6.6% next year.

Vietnam’s GDP is expected by FocusEconomics to rise steadily from US$186 billion in 2015, to US$201 billion this year, US$214 billion in 2017, US$234 billion in 2018, US$259 billion in 2019, and US$285 billion in 2020.

Trading Economics, which provides economic information for 196 countries, also predicted that Vietnam’s GDP growth rate would be 6.7% this year, and trend around 6.9% in 2020.

ADB, FocusEconomics, and Trading Economics also ascribed Vietnam’s high growth to foreign direct investment (FDI), strengthening domestic consumption and demand, and credit.

“High FDI will continue into 2016. The Vietnamese government has set an optimistic target of FDI over the next few years,” Aaron Batten, country economist from ADB Vietnam, said. “Many foreign investors have come to Vietnam in anticipation of many free trade agreements between Vietnam and its partners.”

Tran My Lan, country manager for Vietnam of Lutosa-Belgium’s biggest producer of potato products-said that in March 2016, Lutosa signed distribution deals with other three major distributors in Vietnam.

This stands in sharp contrast to the single distributor used over the past 16 years. “Lutosa wants to expand its presence in Vietnam, as the local demand for high-quality potato products is strongly rising,” Lan said.

Under the Vietnam-EU Free Trade Agreement, import tariffs for potato products will be remarkably reduced.

According to ADB, in Vietnam rising incomes and modest (though quickening) inflation are expected to shore up private consumption. Sharply rising sales of automobiles-up by 55% in 2015-illustrate the recovery in consumer confidence. Vietnam has become the fastest-growing auto market in Southeast Asia, and business sentiment is similarly buoyant.

“A survey in December 2015 showed that 41% of businesses expected conditions to improve in 2016, and a further 40% expected stable conditions,” Batten said.

Merchandise exports will likely rise in value by 10% this year, and by 14% in 2017 as new production from foreign-invested factories come online and free trade agreements take effect. Imports will also continue to grow in response to the strong demand for both consumption and capital goods, and to supply manufacturing input materials.

Batten also noted that an expected surge in credit would serve as a key driver of higher economic growth this year. Credit climbed 18% last year, which was expected to increase to about 20% this year thanks to a rise in private consumption. A large part of credit would likely run into production.