Vietnam’s economic growth is expected to improve by 0.2 percent in 2014, according to the World Bank’s Taking Stock report released on Wednesday.
GDP growth picked up to a relatively brisk 6.2 percent year-on-year in the third quarter of 2014, contributing to an overall growth rate of 5.6 percent for the first nine months of the year.
The recovery is attributed to the rapid growth of major sectors (barring services), especially manufacturing and construction.
Positive macroeconomic conditions contributed to Vietnam’s improved sovereign risk ratings, enabling US$1 billion of government bonds to be issued on international capital markets on favorable terms.
However, relatively flat domestic demand has kept a check on an even faster recovery. Growth in retail sales improved to 6.1 percent in the first 10 months of 2014, up from 4.6 percent in the same period of the previous year, but considerably lower than in 2010.
Foreign-invested and domestic firms are performing at different speeds, the report found.
The foreign-invested sector continues to be a significant source of growth, while the domestic private sector remains subdued, as reflected in the rising number of domestically-owned businesses that have closed or suspended operations.
Sixty thousand businesses closed or suspended operations in the first 11 months of this year, Vu Tien Loc, chairman of the Vietnam Chamber of Commerce and Industry said at the Vietnam Business Forum held in Hanoi early this week.
Over the medium term, Vietnam’s macroeconomic outlook is good, thanks to continued modest GDP growth and a further consolidation of macroeconomic stability.
However, relatively slow progress on state-owned enterprise and banking sector reforms could adversely impact macro-financial conditions, while an adverse turn of events in the global economy could undermine Vietnam’s growth prospects, given the relatively large size of the export sector.
“Vietnam’s potential for much more rapid growth can only be realized if substantial progress is made in addressing distortions such as in the state enterprise and banking sectors, which strain economic efficiency and productivity,” says Victoria Kwakwa, World Bank Country Director for Vietnam. “Stepping up this reform agenda and strengthening the business environment are critical for moving forward.”