Vietnam Economic Outlook 2017
Despite some fundamental challenges, international experts and the Vietnamese government are positive about the Vietnamese economy in 2017.
Positive outlook
A large number of experts believe that Vietnam will be able to achieve its target economic growth of 6.7% in 2017. This is due to three main factors: a sustainable rise in FDI, local production recovery and improvements in domestic business environment. Vietnam in recent years has actively fostered integration by signing different free trade agreements with industrialized economies, which serves as an impetus for foreign investors to enter and develop in Vietnam. With sustained strong levels of FDI inflows, Vietnam’s exports are expected to surge in 2017 and consequently contribute to the overall economic growth.
Other than gaining investment from the outside, Vietnamese government is also showing enormous effort in reforming the domestic market by equitizing the state-owned companies. For example, in 2016, the government decided to sell the entire stake in large state-owned enterprises such as Vinamilk, Sabeco, Habeco, etc. Following this effort, domestic business environment is expected to improve because these companies can now be managed more effectively while at the same time, the market becomes more competitive.
Challenges
By the end of 2016, the inflation is successfully kept at below 5%. However, this figure is expected to be higher in 2017 due to economic pressures and the budget deficit. The government could potentially increase the money supply causing the inflation to rise to 5-8%.
Despite enormous effort in integration, Vietnam’s economy still depends largely on China. The Chinese economy is foreseen to decelerate in 2017 leading to a weaker Chinese Yuan. Thus, this will be likely to reduce the amount of exports from Vietnam while increase the amount of imports from China
, which would restrain the overall economic growth of Vietnam.
Uncertainties in global economy also become a challenge for Vietnam. Political events such as Donald Trump became a new elected US president and Brexit are likely to affect the global growth and international trade. Other uncertainties derived from fluctuated prices of commodity and energy, unusual monetary policy from developed countries, natural disasters and so on.
Potential Solutions
One of a critical solutions for Vietnam to reduce the dependence on China and to cope with global uncertainties is to diversify its trading relationship. This has been carried out in 2016 as Vietnam seeks to enhance relationship and bolsters trade-tie with other countries such as United Arab Emirates (UAE), India, Japan, Canada, New Zealand, etc. By doing this, Vietnam can reduce its vulnerability towards certain risks. For example, the likelihood of TPP being cancelled will not significantly affect Vietnam’s economy because the country still possesses different free trade agreements and bilateral agreements with other nations. Therefore, Vietnam should continue to strengthen the international cooperation in the future.
The majority of international experts also suggest Vietnam to foster the economic transform to support the growth based on productivity and quality. Vietnam over the years has been well known for its ability in offering a large amount of cheap labor. However, it is time for the country to enhance its competitiveness by boosting capital productivity and increasing the quality of domestic products. This can be achieved through strong educational reform, proper training, investments in technology and encouragement for creativity as well as innovation. Only then, Vietnam can develop sustainably and leap frog to become the next Asia’s Tiger.
Sources: 1, 2, 3