ADB pares Vietnam economic growth forecast

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The Asian Development Bank has lowered Vietnam's economic growth forecast for this year from its earlier 5.7 percent to 5.2 percent.

The Asian Development Outlook 2013 (ADO), released Tuesday, also forecast GDP growth of 5.6 percent next year if the country achieves progress in strengthening its banking sector and large industrial economies recover.

It expects inflation to be around 7.5 percent this year 2013, also lower than its previous forecast due to lower-than-expected domestic demand. It is forecast to rise to 8.2 percent in 2014.

The forecasts assume that weather conditions will be favorable for food production, the foreign exchange rate will be relatively stable, and policy will remain tight.

It expects the trade surplus to climb to a record US$12.5 billion in 2013, and the current account surplus to increase further this year before easing in 2014 as imports accelerate along with GDP growth.

Addressing a press conference while releasing the ADO 2013, Tomoyuki Kimura, ADB country director for Vietnam, said GDP growth in 2012 was the slowest in 13 years.

While subdued economic growth prompted authorities to ease monetary policy, credit growth was constrained by uncertainty in the health of the banking system, he said.

"Economic recovery depends on banking and SOE (state-owned enterprise) reforms being accelerated.

"The ADB suggests the government take a more strategic and selective approach towards structural reforms, particularly SOE restructuring, as it is not possible to do everything at once.

"Some initial success and progress can spur further reform momentum."

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Despite these concerns, Kimura said Vietnam remains an attractive destination for foreign investment because of its large and growing working-age population and low labor costs, and it is illustrated by the general rising trend in FDI in the last decade.

Nevertheless, as ASEAN integration in 2015 approaches, the country faces increased competition for FDI in Southeast Asia, he said.

Vietnam's ability to remain competitive and drive economic growth back to 7-8 percent would depend on successful implementation of structural reforms and improving the business environment more broadly, he added.

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