HCMC – Ernst & Young (EY) in its latest rapid-growth markets (RGMs) report forecasts Vietnam’s economy to develop strongly in 2014 with a growth rate of 5.4% and reach a peak of 7% in 2016.

With growth held down to about 5% in 2012 and 2013, policymakers will target faster expansion from 2014. They are gradually reducing the fiscal deficit and using lower inflation to bring down borrowing costs. The growth rate is set to pick up to the 7% target by 2016, the report said.

However, the upturn will be slow this year, with rising imports offsetting the impact of stronger export growth, and public sector inefficiency blunting the investment recovery.

A strong rebound in foreign direct investment (FDI) commitments will underpin the financing of the external deficit that is expected to reappear from 2015. This will calm concerns about the stability of the dong that have resulted from low reserves.

FDI will promote a shift away from textiles and agriculture, the decline of which lie behind the widening trade gap in the fourth quarter of 2013, EY commented.

Inflation will continue to subside, ensuring a return to real wage growth between 2014 and 2017. This will strengthen domestic demand and ease social tensions.

However, the investment recovery will be slowed this year because interest rates will fall only gradually, reflecting lingering inflation fears and banks’ caution as they continue to build up bad-debt provisions.

E&Y also expected 25 RGMs as a whole this year with growth over 5% in 2015. But markets may react negatively to the global monetary tightening expected this year and this would limit growth over the next couple of years.

In addition, as the U.S. begins its tapering of quantitative easing, and with many RGM currencies still under pressure, the risk of capital flight and a sharp slowdown has increased.

In this scenario, gross domestic growth in RGMs falls to 3.7% and 2.8% in 2014 and 2015 respectively. As RGMs falter, growth in advanced economies also decelerates due to weaker external demand and increased volatility in financial markets.

By Phuong Thao - The Saigon Times Daily

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