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Stronger domestic demand bolsters Vietnam’s economic recovery: World Bank

Thursday, December 03, 2015, 10:10 GMT+7
Stronger domestic demand bolsters Vietnam’s economic recovery: World Bank
Men work on the assembly line at a Piaggio scooter and motorcycle factory in Vietnam's northern Vinh Phuc province, outside Hanoi July 11, 2013.

A number of positive economic performances have enabled Vietnam’s economy to weather recent external turbulence quite well, the World Bank said in a report released Wednesday.

Vietnam has made further recovery in domestic demand, which reflects robust private consumption and investment growth, and is thus expected to post a GDP growth rate of 6.5 percent this year, according to the Taking Stock report.

“Stronger domestic demand, robust export performance, low inflation and improved confidence have enabled Vietnam to create firmer foundations for mid-term growth,” Victoria Kwakwa, World Bank Country Director for Vietnam, said in a press release also on Wednesday.

While better macroeconomic conditions have helped maintain stability in the Vietnamese banking system, Kwakwa said it is now “a good time” to further solidify macroeconomic stability.

Vietnam should also “rebuild policy buffers through decisive efforts to rein in fiscal imbalances and tackle remaining vulnerabilities in the banking sector,” she said.

The country’s export performance remains strong, with total export turnover increasing by 9.2 percent from the same period last year, largely due to the strong performance of manufacturing exports, especially high technology products such as cellphones, electronics, and computers, according to the report.

The Taking Stock report also says the medium-term outlook for Vietnam remains positive, with growth projected to strengthen and inflation expected to remain low.

“However, slow structural reform poses risks to medium-term growth prospects, while delays in implementing fiscal consolidation could undermine debt sustainability,” it warns.

Against the backdrop of these uncertainties, the report suggests that sound macroeconomic management remains crucial to rebuild said policy buffers and safeguard against future shocks.

“Fiscal consolidation, structural reforms, and a further build-up of reserves could help reduce vulnerabilities,” it advises.

The report also features a special section on the Trans-Pacific Partnership (TPP) agreement, in which it argues that the trade deal is expected to generate considerable benefits to Vietnam.

“The recently concluded TPP will not only improving market access, but will also serve as a critical anchor for the next phase of structural reform in Vietnam,” said Sandeep Mahajan, lead economist for the World Bank Vietnam.

The TPP agreement was reached by 12 nations, including Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the U.S., and Vietnam, in Atlanta on October 5.

While Vietnam has the lowest per capita GDP among these economies, the report says the Southeast Asian country still has “unique comparative advantages,” particularly in labor-intensive manufacturing.

On the economic impacts, simulations suggest that the TPP could add as much as eight percent to Vietnam’s GDP, 17 percent to its real exports, and 12 percent to its capital stock over the next 20 years, according to the report.

“Despite various implementation challenges, the impact of the TPP on Vietnam is expected to be positive,” it concludes.

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