MAJOR MACRO ECONOMIC INDICATORS
|2014||2015||2016 (f)||2014 (f)|
|GDP growth (%)||6.0||6.7||6.2||6.5|
|Inflation (yearly average) (%)||4.1||0.6||2.0||3.7|
|Budget balance (% GDP)||-6.1||-5.9||-6.5||-6.0|
|Current account balance (% GDP)||5.4||0.9||0.7||1.0|
|Public debt (% GDP)||55.1||58.3||62.0||64.6|
(e) Estimate (f) Forecast
- Cheap, skilled labour
- Strong agricultural potential and natural resources
- Development strategy based on openness, a move upmarket and diversification of the economy
- Economy barely effected by the Chinese slowdown
- Shortcomings in the business climate
- Lack of infrastructure
- Unfinished reform of the public sector
- Growing inequality
- Weak banking system
Growth is expected to stabilise
Despite a slight slowdown, growth remained robust in 2016. This trend is likely to continue in 2017. The exporting sectors will continue to benefit from growth in foreign direct investments (FDI), the participation of Vietnam in a growing number of free-trade agreements and from delocalisation from China. In addition, the country benefits from the move upmarket of exports, particularly electronics, thanks to FDIs. The country is a hub for production of smartphones and tablets. Moreover, the development of the textile and petrochemical sectors is also dynamic. Despite sluggish global demand, particularly from China, the 3rd largest recipient of Vietnamese exports, the country's external trade will remain positively oriented.
Meanwhile, after years of high and volatile inflation, better inflation control has helped improve consumer confidence, so consumer spending is expected to continue to climb. In addition, the growing middle class and increased household borrowing also helps sustain internal demand, and specifically car sales. Investment is expected to benefit from the acceleration in industrial production and from a national plan to promote infrastructure. Nevertheless, it will continue to suffer from banking system weaknesses which constrain the financing of enterprises.
Tourism is expected to remain dynamic and will continue to support the hotel industry and retail sales. The implementation of an electronic visa system during 2017 is expected to boost the development of the sector, which will, however, still be constrained by infrastructure shortcomings.
Finally, the Vietnamese economy will continue to be a two-speed economy, with foreign-owned companies growing strongly and public-sector companies indebted and hardly profitable.
Public accounts remain fragile
In 2017, the fiscal deficit will remain high but is expected to shrink slightly. Indeed, although the privatisation programme of state-owned enterprises has been delayed, the income generated by this program should grow. Public debt will remain high and will continue to rise. It will remain vulnerable to foreign exchange risk as it is denominated almost 50% in foreign currency. In addition, contingent liabilities could call into question the sustainability of the public debt in the medium term in the event of public-sector company defaults.
Furthermore, after experiencing significant capital outflows, forcing the authorities to devalue the dong six times between 2008 and 2011, the country's external accounts have since stabilised. Exports have proved to be resilient in the face of the unfavourable international environment. The current account surplus is expected to increase slightly, despite the strength of domestic demand.
Despite the rise in foreign exchange reserves, they remain insufficient (2 months of imports in 2017). In 2017, the dong will remain exposed to fluctuations in global risk aversion, particularly in connection with US monetary policy tightening.
Finally, the banking system remains fragile because it is undercapitalised and highly dollarised. Despite the creation of a bad bank, credit risk remains significant and undervalued. Moreover, the high exposure of state-owned banks to opaque public-sector enterprises is a further weakness factor.
Geopolitical tensions and greater trade integration
The dispute over sovereignty in the China Sea between Vietnam and China re-erupted in 2014 with the installation of a Chinese oil platform in waters claimed by Vietnam. This generated strong anti-Chinese sentiment in Vietnam resulting in demonstrations and violence against Chinese interests. China finally dismantled the platform under pressure from the United States and the ASEAN countries have decided to develop a code of conduct with China on this issue. In addition, in November 2015, at the APEC Summit, Vietnam and the Philippines reached a strategic agreement aimed at increasing cooperation between the two countries, including in the resolution of this dispute. In 2017, Vietnam is expected to continue to consolidate its links with Japan.
Meanwhile, despite the likely withdrawal of the United States from the TPP (Trans Pacific Partnership), the country should continue to strengthen its trade integration, both at bilateral and multilateral levels.
In addition, governance is a risk in terms of attractiveness for foreign investors. Finally, the Communist Party continues to control all political, economic and social life.
Last update: January 2017