ADB: Asian Development Outlook 2012 – Vietnam Outlook

The annual Asian Development Outlook provides a comprehensive analysis of economic performance for the past year and offers forecasts for the next 2 years for the 45 economies in Asia and the Pacific that make up developing Asia.

Despite weak global demand, Asian Development Outlook 2012 expects that developing Asia will largely maintain its growth momentum in the next couple of years, in an environment of easing inflation for most regional economies, although policy makers must be alert to further oil-price spikes arising from threats of oil supply disruptions.

The report sees that the greatest risk to the outlook is the uncertainty surrounding the resolution of sovereign debt problems in the eurozone. Still, in the absence of any sudden shocks, developing Asia can manage the effects on its trade flows and financial markets.

The theme chapter looks at widening inequality: in spite of developing Asia’s great success in raising living standards and reducing poverty, swelling income disparities threaten to undermine the pace of progress. Regional policy makers need to ensure that the benefits of growth are widely shared.

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Press Release
Asian Development Outlook 2012, 298 pages, pdf
Asian Development Outlook 2012 : Vietnam Outlook, 3 pages, pdf

The Asian Development Bank (ADB) said that Vietnam’s gross domestic product (GDP) growth would slow to 5.7 percent in 2012 before picking up to 6.2 percent in 2013.

“Vietnam’s average inflation this year could ease to just under double digits, providing policy settings are kept sufficiently firm, but then expected to quicken to 11.5 percent in 2013,” said Tomoyuki Kimura, ADB country director for Vietnam.

Kimura said the tight policy adopted to curb high inflation in 2011 also slowed economic growth. To support flagging economic growth, the Vietnamese authorities have slightly loosened monetary policy in early 2012, and signaled that further easing is likely if inflation trends down.

According to Kimura, the Vietnamese government’s efforts on structural reforms obtained positive results. However, he stressed that the government needs to increase the transparency of the reform process, particularly in relation to the state-owned enterprise (SOE)sector.

“Increased transparency of the financial performance of state enterprises would provide a strong signal to the market that the government was committed to reforms,” said Kimura. “The reform process would also benefit from more information on the progress of structural reforms to date relative to government’s targets and objectives.”

ADB said Vietnam’s rapid growth in lending over several years, followed by the squeeze on credit in 2011 and exacerbated by downturns in property and equities markets, have added to stresses for banks.

“Safeguarding the banking sector should be the immediate priority,” Kimura said, “the longer-term requirement is to develop a diversified and efficient financial system that can mobilize the funding to meet the 7-8 percent economic growth target. These complex reforms, which will take years to complete, would benefit from coordination with the proposed restructuring of SOEs.”

According to ADB’s forecast, Vietnam’s export growth will slow down as compared to last year, owing to weaker world trade, although Vietnam should benefit from the expected gradual pickup in the United States, its biggest export market.