An employee at a Japan-invested electronic parts company in Ho Chi Minh City.
Electronics exports are now Vietnam’s top export item, overtaking traditional items such as garments, leather, coffee, and rice, and contributing much to the country's growth. Photo: VNA
Vietnam’s growth is expected to rise modestly to 5.5 percent in 2014 in the absence of visible progress in addressing structural problems, the World Bank said in a recent report.
The trade and current accounts are expected to remain in surplus this year, although by a smaller amount than in 2013.
Meanwhile, inflation is likely to stay within the government target of 7 percent in 2014 given the modest credit growth and assuming that no major supply-side shocks materialize, the Washington-based lender said in the East Asia Pacific Economic Update released Monday.
Vietnam’s economy expanded 5.4 percent last year from 5.3 percent in 2012. Inflation slowed to 6.6 percent in 2013 from 9.1 percent in 2012.
The bank said Vietnam’s economy returned to a relatively stable macroeconomic environment during the last two years compared to the tumultuous period of 2007–11 thanks to measures like reducing inflation, strengthening external accounts, and stabilizing the foreign exchange market.
It said that strong exports and a sustained flow of external capital and remittances have helped the country turn around its external balances.
Despite the improved macroeconomic balances and strengthened external accounts, a sustained recovery in GDP growth remains hampered by slow-moving structural reforms and global uncertainty, according to the report.
Domestic demand in Vietnam remains weak on account of subdued private sector confidence, overleveraged state-owned enterprises, undercapitalized banks, and shrinking fiscal space.
On the supply side, cross-country competitiveness assessments show that Vietnam is falling behind relative to comparator economies. Reenergizing medium-term growth will require renewed attention on a number of structural reforms—with emphasis on restructuring the country’s state-owned banks and enterprises and removing barriers to domestic private investment.
The World Bank forecasts Vietnam to grow 5.6 percent in 2015 and 5.8 percent in 2016.
The lender also said developing countries in the East Asia Pacific region will see stable economic growth this year, bolstered by a recovery in high-income economies and the market’s modest response so far to the Federal Reserve’s tapering of its quantitative easing,
Developing East Asia will grow by 7.1 percent this year, largely unchanged from 2013, to remain the fastest growing region in the world, the bank estimates in its report.