2017 holds mixed prospects for growth, say experts

The government just submitted a draft scenario for economic development in 2017 to the National Assembly, with a growth target of 6.7 per cent, higher than this year’s expected 6.3-6.5 per cent.

According to the Ministry of Planning and Investment (MPI), which designs the growth targets, local production recovery and a rise in foreign direct investment (FDI) will be the major propellants for next year’s higher growth.

Some high-profile international experts agreed with MPI’s view.

Raymond Mallon, economic advisor from the Australia-Vietnam economic reform programme, told VIR, “The 2017 growth target of 6.7 per cent is achievable, but far from assured.

“On the positive side, some further recovery in agriculture growth is likely, there is potential for accelerated growth in domestic demand, and sustained strong levels of FDI inflows.”

Marlène Rump, economist at Spain-based FocusEconomics, which features economic forecasts from the world’s leading economists, said that FocusEconomics predicts Vietnam’s economy will grow 6.5 per cent next year, due to the challenges the country still faces, “but our projection does mark acceleration”.

“For 2017, we see industrial production and exports accelerating, both of which will underscore growth. Exports are set to surge thanks to FDI in export-oriented industries and a growing number of trade agreements with industrialised economies,” Rump said.

Eric Sidgwick, Asian Development Bank country director for Vietnam, told VIR that it would be difficult for the country to grow 6.7 per cent next year, but rather, the rate may only be 6.3 per cent.

“The most important thing for Vietnam is high-quality growth, not growth figures,” Sidgwick said. “Ideally, Vietnam should have

high-quality growth which can be ensured in the long-term.”

Last week, HSBC issued its forecast that Vietnam may grow 6.2 per cent for 2016, and 6.5 per cent for 2017, while it is expected that the economy will outperform in the short-term.

“Employment rose at the fastest pace in over five years. This, and the fact that firms are trying to build inventory, suggest that manufacturers remain optimistic,” said HSBC economist Frederic Neumann.

It is expected that registered FDI and disbursed FDI into Vietnam this year will be about $24 billion and $15 billion, respectively, which are higher than last year’s respective figures of $22.76 billion and $14.5 billion.

“With new factories commencing operations this year, we expect such FDI to drive further gains in exports. Vietnam remains highly competitive, especially in apparel and electronics assembly, and should gain a greater global market share even as world trade remains lacklustre,” Neumann said.

However, the experts also noted that to reach higher growth next year, Vietnam must address some fundamental challenges.

“Business success in the industry and service sectors continues to be partly dependent on personal access to people who are decision makers on the allocation of land, permits, or contracts,” Mallon said. “Sustaining stronger and more inclusive growth will require further regulatory reforms to ensure that everyone, regardless of their position in society, has more equal access to economic opportunities.”

Meanwhile, according to Rump of FocusEconomics, inefficiencies in indebted, state-owned companies and poorly allocated government funds could hamper productivity. Public debt is getting “dangerously” close to the 2017 ceiling of 65 per cent of GDP set by the National Assembly. “High government debt could result in worse credit conditions and scarcer FDI. The government needs to take a close look at its expenditures and undertake reforms to achieve a leaner and more sustainable fiscal position,” she said.

Moreover, according to Rump, Vietnam’s economic outlook also depends on China’s momentum. “We foresee the Chinese economy decelerating in 2017, which could translate into lower external demand for Vietnamese goods and services. Continued diversification of trading partners will alleviate the strain this dependency entails.”