Vietnam’s growth among strongest in large developing ASEAN economies

The World Bank (WB) on Tuesday forecast that Vietnam would grow at an average of 6.3 per cent in 2016-18.

Under the latest update of its Global Economic Prospects report, the WB forecast that among the large developing ASEAN economies, Vietnam and the Philippines have the strongest growth prospects.This growth would be due to rising foreign direct investment, growing exports of manufactures and solid labour markets.

The WB also predicted that State-owned enterprise (SOE) reforms in Vietnam, which include improving transparency and governance, could reduce drains on fiscal resources.

Banking sector reforms would be priorities for improving efficiency and the allocation of capital in Vietnam, according to the WB.

Under the report, the WB has downgraded its 2016 global growth forecast to 2.4 per cent from the 2.9 per cent it projected in January. The move is due to sluggish growth in advanced economies, stubbornly low commodity prices, weak global trade, and diminishing capital flows.

According to the latest update report, commodity-exporting emerging market and developing economies have struggled to adapt to lower prices for oil and other key commodities, and this accounts for half of the downward revision. Growth in these economies is projected to advance at a meagre 0.4 per cent pace this year, a downward revision of 1.2 percentage points from the January outlook.

“This sluggish growth underscores why it is critically important for countries to pursue policies that will boost economic growth and improve the lives of those living in extreme poverty,” World Bank Group President Jim Yong Kim said.

“Economic growth remains the most important driver of poverty reduction, and that is why we are very concerned that growth is slowing sharply in commodity-exporting developing countries due to depressed commodity prices,” he said.

Commodity-importing emerging markets and developing economies have been more resilient than exporters, although the benefits of lower prices for energy and other commodities have been slow to materialise. These economies are forecast to expand at a 5.8 per cent rate in 2016, down modestly from the 5.9 per cent pace estimated for 2015, as low energy prices and the modest recovery in advanced economies support economic activity.

Among major emerging market economies, China is forecast to grow at 6.7 per cent in 2016 after 6.9 per cent last year. India’s robust economic expansion is expected to hold steady at 7.6 per cent, while Brazil and Russia are projected to remain in deeper recessions than forecast in January. South Africa is forecast to grow at a 0.6 per cent rate in 2016, 0.8 of a percentage point more slowly than the January forecast.

A significant increase in private sector credit – fuelled by an era of low interest rates and, more recently, rising financing needs – raise potential risks for several emerging market and developing economies, the report finds.

“As advanced economies struggle to gain traction, most economies in South and East Asia are growing solidly, as are commodity-importing emerging economies around the world,” World Bank Chief Economist and Senior Vice President Kaushik Basu said.

“However, one development that bears caution is the rapid rise of private debt in several emerging and developing economies. In the wake of a borrowing boom, it is not uncommon to find non-performing bank loans, as a share of gross loans, to quadruple,” he said.

In an environment of anaemic growth, the global economy faces pronounced risks, including a further slowdown in major emerging markets, sharp changes in financial market sentiment, stagnation in advanced economies, a longer-than-expected period of low commodity prices, geo-political risks in different parts of the world, and concerns about the effectiveness of a monetary policy in spurring stronger growth. The report introduces a tool to quantify risks to the global outlook and finds that they are now more tilted to the downside than in January.

“Flagging growth prospects in emerging markets and developing economies would slow or even reverse their progress in catching up to income levels of advanced economies,” Development Economic Prospects Group Director Ayhan Kose said. “However, some commodity-importing emerging and developing economies have been able to register steady or accelerating growth over the last three years.”

Source VNS

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