FTAs can keep economy on track

Vietnam’s economy has bright prospects relative to its regional peers-Photo: Le Toan

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 per cent was reduced to 6.2 per cent.

“The moderate growth rate of 6.2 per cent 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 per cent 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 per cent this year, down from 2.4 per cent last year. The industrial sector is projected to climb 9 per cent this year, down from 9.6 per cent last year.

In addition, since early last year, Vietnam’s exports have been dropping in volume. Export growth moderated to 8 per cent in 2015, down from 13.8 per cent in 2014. In this year’s first quarter, the growth rate is 4.1 per cent, compared to a rise of 6.9 per cent 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 per cent would still be far higher than the average of 4.8 per cent 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 per cent to Vietnam’s GDP, 17 per cent to its real exports, and 12 per cent 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 per cent in 2035), followed by the reform of non-tariff measure impacts (32 per cent), and finally, liberalisation of services restrictions (16 per cent). Manufacturing exports, comprising 58.1 per cent of Vietnam’s 2015 real exports, are expected to increase 30 per cent during 2015 – 2035.