|Customers at an OCEAN BANK branh in Ha Noi. A healthier banking sector with reduced non-performing loans and increased exports will enable Viet Nam to grow at 5.4 per cent this year, a new study says. — VNS Photo Truong Vi
HCM CITY (VNS)— A healthier banking sector with reduced non-performing loans and increased exports will enable Viet Nam to grow at 5.4 per cent this year, the Institute of Chartered Accountants in England and Wales has said in a report.
The rate will speed up in 2015 and 2016, with growth hitting 5.7 per cent, according to the Economic Insight: South East Asia report released yesterday.
The institute does a quarterly review of Southeast Asian economies with a focus on Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Viet Nam.
Robust growth would come on the back of the country becoming more open to international investors, which would help attract capital into the economy, it said.
Increases in government spending, partially thanks to the privatisation of state-owned assets, were also expected to support growth rates over the next few years.
Demands on energy would continue to grow with the economic boom and Viet Nam could soon join its neighbours in becoming a net energy importer.
In many ASEAN countries, demand for energy was growing at a faster pace than domestic production and continued economic expansion could well mean these economies becoming increasingly dependent on international energy markets to meet their needs.
This would make countries vulnerable to unexpected price movements which could have an effect on inflation.
However, falling global oil prices between 2014 and 2016 – and the entrance of Iran into the global energy market - should help mitigate inflation in the region.
Douglas McWilliams, ICAEW chief economist and executive chairman of The Centre for Economics and Business Research said: "Economic growth in Viet Nam is set to accelerate as relatively cheap labour, a disciplined labour force and improving conditions for investors continue to attract new capital. As long as this cost advantage remains, the country will benefit from strong growth and investor appeal."
Food inflation was also expected to rise in countries like Malaysia, Indonesia and the Philippines in light of the devastation of agricultural land in the Philippines because of typhoon Haiyan, and the ending of food and fuel subsidies in Indonesia and Malaysia, the report said.
But healthier global harvests had taken some of the strain off the global supply of food, and this should help alleviate some of the food price increases seen in the past two years that had impacted the working and middle classes.
Across the region, ASEAN governments were expected to remain focused on reining in public spending to reduce debt levels and boost investor confidence in the region.
This was the main reason why countries like Malaysia and Indonesia had progressively cut key subsidies to reassure investors of their countries' financial credibility.
But this meant there was a realistic risk of tax increases in the short term.
"Balancing public spending with responsible budgeting is important for ASEAN governments, particularly as US stimulus tapering means local governments are competing for capital against developed markets offering greater returns," Mark Billington, regional director, ICAEW South East Asia, said.
"Though there may be some short-term pain, the long-term advantage is that by redirecting funds to long-term infrastructure and capacity development – for example in Indonesia –countries will be better prepared for long-term growth and prosperity." — VNS