ADB: Growth expected at 6.5%

ADB: Growth expected at 6.5% 05/04/2023 16:55:00 341

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ADB: Growth expected at 6.5%

05/04/2023 16:55:00

( GDP growth to be constrained by the global economic slowdown, latest ADB report notes.

The Asian Development Bank (ADB) has forecast Vietnam’s economic growth at 6.5 per cent this year and 6.8 per cent in 2024.

Growth will be constrained by the global economic slowdown, continued monetary tightening, and the spillover effects from the Russia - Ukraine conflict, according to the Asian Development Outlook (ADO) released by the ADB on April 4.

However, China’s reopening will help counter these headwinds and the economy is forecast to grow 6.5 per cent in 2023 and 6.8 per cent next year, it said.

The ADO highlighted that global economic slowdown deepened in the fourth quarter of 2022 and will likely continue in 2023. Falling global demand is expected to weigh on industrial growth.

Services are expected to expand 8.0 per cent in 2023 on revived tourism and associated services.

China’s reopening will benefit agriculture. It could generate significant demand for Vietnamese agricultural exports, as the country receives 45 per cent of Vietnam’s exports of fruit and vegetables. Agriculture is therefore expected to expand by 3.2 per cent in 2023.

Public investment will be the key driver of economic recovery and growth this year, the report noted. A considerable amount of public investment is scheduled to be disbursed in 2023. The government is committed to disbursing $30 billion during the year, of which 90 per cent had been allocated to ministries and provinces as of January 2023. Foreign investment, however, will still be hampered by the global economic slowdown. Newly-registered and disbursed FDI fell 38 per cent and then 4.9 per cent year-on-year in the first two months of 2023.

On the demand side, domestic consumption will continue to rebound in 2023. Revived tourism, new public investment and stimulus programs initiated in January 2022, and a salary increase effective from July are expected to keep domestic consumption on the rise, though higher inflation may hamper its recovery.

Weakening global demand will continue to dampen trade in 2023, according to the report. Exports in the first two months of 2023 decreased 10.4 per cent year-on-year, while imports fell 16.0 per cent. Both imports and exports are forecast to shrink 7.0 per cent this year and next. Slowing trade could create a current account deficit that equals 1.0 per cent of GDP this year, before moving back into surplus in 2024.

The ADB suggested that Vietnam continue to coordinate monetary and fiscal measures to support the economy. The implementation of a social housing program should balance the need for prudent lending to avoid future non-performing loans with the need to speed up disbursement. A more accommodative monetary stance notwithstanding, Vietnam should continue to prioritize price stability because escalating geopolitical tensions and accelerating disbursement of public investment may still stoke inflation in 2023.

Finally, it is critical to accelerate the disbursement of $30 billion in public investment. Along with the continued implementation of the stimulus program endorsed in January 2022, this spending will generate substantial multiplier effects, creating strong motivation for the whole economy. In the long term, financial reform should continue, to reduce dependence on bank finance and enhance transparency in bond markets, according to the report.

Phan Linh

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