Vietnam’s GDP growth is forecast to edge up to 6.1 percent in 2015 and 6.2 percent in 2016, with foreign direct investment an important driver, the Asian Development Bank has said in a new report.
The country’s inflation is projected to average 2.5 percent this year, and quicken to four percent in 2016 as domestic demand and global oil prices rise, ADB said in its Asian Development Outlook 2015 report, released on Tuesday.
The Vietnamese economy grew by 6.0 percent in 2014, the strongest pace since 2011, according to the report.
Vietnam said its GDP growth topped 5.98 percent last year, to be exact.
The ADB forecasts, however, assume that the Vietnamese government will maintain expansionary monetary policies in a low-inflation environment, the Manila-based bank noted.
Vietnam’s inflation ebbed further in the first two months of this year to 0.6 percent as food and transport costs declined.
The central bank wants banks to trim deposit and lending interest rates by 1.0-1.5 percentage points in 2015, after cuts of around two percentage points were made in 2014, according to ADB.
In January this year, the central bank devalued the dong by a further one percent against the U.S. dollar and it might devalue by up to two percent in 2015.
"Better economic performance in the major industrial economies, particularly the United States, Vietnam's biggest export market, will help to spur export growth," Tomoyuki Kimura, ADB country director for Vietnam, said at a press conference in Hanoi also on Tuesday.
Lower interest rates, ratings upgrades, and brighter prospects for manufactured exports have improved the outlook for investment in Vietnam, according to the report.
The drop in global oil prices from last year is also a positive development for the Vietnamese economy.
“Lower fuel prices boost household disposable income, stimulate consumption, and reduce costs for many businesses, supporting profits and investment,” the report reads.
Vietnam produces about 350,000 barrels of oil per day and is a net exporter of crude oil, but it is a net importer of refined petroleum products.
The fall in oil prices dents government revenue, but fiscal policy is still likely to promote economic growth, according to the report.
The report also points out that the Southeast Asian country’s policy challenges are to reform banks and state enterprises and to integrate domestic firms into global value chains.
Exports of manufacturers in Vietnam have surged in the past five years as multinational companies built factories to assemble products such as mobile telephones and electronics, or to fabricate parts, as part of their global production chains.
However, the country’s main contribution to these production chains is low-skilled labor, according to the report.
The cost of imported materials and components is estimated to equal 90 percent of the value of Vietnam’s exports of manufactured goods.
Vietnam’s future economic prosperity will thus depend greatly on involving more domestic firms in global value chains so that enterprises can “benefit from foreign funding and technology and gain access to global markets, as well as generate spillover to benefit the whole economy.”