The Vietnamese government’s commitment to broad-based economic reforms bodes well for the country’s longer term prospects and look to have it on the path to upper middle-income status, held Khoon Goh, head of Asia Research at Australia and New Zealand Banking Group Limited (ANZ).
In an article on bluenotes.anz.com, Goh noted that Vietnam’s gross domestic product growth in the first half of 2019 was solid, particularly considering the downturn in global trade and the impact of African swine fever (ASF) on the agriculture sector.
As a result, ANZ Research maintains its full-year 2019 GDP growth forecast for Vietnam of 6.7 percent. Although this is lower than the 7.1 percent growth rate achieved in 2018, it reinforces Vietnam’s place as one of the fastest-growing economies in Asia, he stated.
As Vietnam continues to reap the benefits of past reforms and commit to further ongoing reforms, the country is on track to double its per capita gross national income from 2,400 USD in 2018 to 4,800 USD by 2028, graduating to upper middle income status.
He held that there is a need for the country to manage the strong FDI inflows to ensure adequate resource allocation while preventing overheating. Meanwhile, the government’s shift towards a focus on attracting new-generation FDI is essential to ensure sustainable economic development, according to Goh.
Growth in Vietnam’s services sector has remained robust at 6.83 percent year on year in the second quarter, as strong wage growth and growing urbanisation helped boost wholesale and retail trade.
Expanding manufacturing and external trade activity has also ensured strong growth for both the transport and warehouse sectors, while the financial services sector continues to benefit from growth in the overall economy, noted the expert.
One area that will require increasing policymaker attention is demographics. Although the working age population is still growing in absolute numbers, it peaked in 2015 as a proportion of the total population.
Vietnam is aging, the number of people over the age of 60 will rise rapidly, resulting in the dependency ratio doubling within 20 years. This is one key reason why ANZ Research expects to see a slowing in Vietnam’s medium-term potential growth rate towards 6 per cent over the next decade.
Managing this structural change requires timely measures in areas such as the retirement age and pension reforms.
If successful, such reforms could be sufficient to move the country into the upper-middle income category, he concluded.