News Room - Business/Economics

Posted on 16 Apr 2010

Economic rebound to accelerate, says ADB

Viet Nam's rebound from the global economic recession is projected to gain pace this year, but inflationary pressures will require special attention, the Asian Development Bank said yesterday.

 

The 2010 Asian Development Outlook (ADO) expected Viet Nam's gross domestic product (GDP) to accelerate to 6.5 per cent in 2010, a healthy increase of 1.2 per cent compared to last year which saw the worst growth in the last five years, in line with the rest of Asia which is on track for a strong recovery.

 

The Manila-based bank said Asia's developing economies would grow by 7.5 per cent this year. Southeast Asia's aggregate growth is likely to rebound to 5.1 per cent in 2010, up from 1.2 per cent in 2009.

 

In 2011, Vietnamese growth is forecast to increase slightly to 6.8 per cent, which is still below the country's record 8.5 per cent expansion in 2007.

 

Substantial and timely policy responses helped Viet Nam weather the global economic crisis last year, said the ADB's flagship annual economic publication that forecasts economic trends in Asia.

 

"We believe the Government has done extremely well by quickly putting together many measures to minimise adverse impacts from the global economic crisis on Viet Nam, and implementing them," said ADB Country Director Ayumi Konishi yesterday at the launch of ADO 2010 in Ha Noi.

 

"Thanks to the quick response, Viet Nam's recovery began in the second quarter last year and the country was able to achieve 5.3 per cent growth, which was much higher than many other countries," said Konishi.

 

With tightened fiscal and monetary policies with the fiscal deficit target at 8.3 per cent of GDP, and target credit growth of 25 per cent this year, the bank estimated an acceleration of Viet Nam's economic growth this year and next, with the average inflation expected to reach 10 per cent in 2010 before easing back to 8 per cent in 2011. The Vietnamese Government forecast the same economic growth and 7 per cent inflation this year.

 

Inflation dropped in early 2009 but started crawling up from year-end, said ADB Deputy Country Director Yumiko Tamura in her presentation yesterday.

 

Inflation reached "worryingly high" levels this year, with consumer prices climbing by 9.46 per cent in March, the biggest gain in a year, up from 8.46 per cent in February.

 

Since investor confidence is the key factor for Viet Nam to attract large inflows of foreign direct investment, the importance of macro-economic stability is emphasised so that the capital account surplus is larger than the current account deficit to ensure increased foreign exchange reserves, the bank warned.

 

Viet Nam will implement the new Socio-Economic Development Plan 2011-15 as a middle income country, and a focus on efficiency will enable it to integrate deeper into the regional and global value chains, according to the report.

 

"While we appreciate the temptation to accelerate growth, we emphasise the importance of macro-economic stability at this stage to lay a solid foundation for Viet Nam's sustainable and rapid economic growth at a later stage, as it is becoming a middle income country," said Konishi, adding that large stimulus measures also invited macro-economic vulnerabilities, particularly in terms of the pressure on the Vietnamese dong and inflation.

 

Earlier this month, the Vietnamese Government asked local authorities to work out solutions to decrease the interest rate to a savings rate of 8-9 per cent and a lending rate of 11-12 per cent, in an effort to restrain high inflation and stabilise macro economics.

 

The central bank (SBV) agreed to issue an ordinance stipulating Vietnamese-currency loans with negotiable interest rates early this month in a move to secure macro-economic stability, curb inflation and ensure the targeted economic growth rate. A plan to grant favourable loans to exporters in key sectors is also being worked out.

 

"What is most important is the Government's determination to ensure macro-economic stability and the clear signalling of its policies towards fiscal consolidation and monetary tightening," said Konishi. "Stability and efficiency will be the engine of Viet Nam's sustainable economic growth, and it is not the time to rush."

 

The bank urged the Government to pay close attention to inflation and closely monitor trade.

 

"Without enhancing the efficiency of the country's economic systems, attempts to achieve a higher economic growth rate will inevitably invite the return of high inflation, and concern over inflation will result in pressure on the dong."

 

The report noted that the Government took several steps to improve governance and the business environment in 2009. The ongoing efforts under Project 30 to reduce administrative procedures are considered as a policy moving in the right direction to improve efficiency.

 

The ADB annual report looks at 44 jurisdictions stretching from the former Soviet states of Central Asia to some Pacific islands, but excludes developed countries such as Japan, Australia and New Zealand.