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Viet Nam Economic Growth to Remain Strong in 2004 and 2005

HANOI, VIET NAM (22 September 2004) - Viet Nam's economic performance in the first half of 2004, supported by the better business environment and robust external demand, suggests that gross domestic product (GDP) growth will remain above 7% in 2004 and 2005, according to a major Asian Development Bank (ADB) report released today.

The Asian Development Outlook 2004 Update (ADO Update) issued today by ADB, is an update of the Asian Development Outlook 2004 (ADO 2004) released in April. ADO is ADB's flagship economic publication analyzing and forecasting economic trends in the Asia-Pacific region.

Strong domestic demand and exports are likely to push GDP growth to 7.5% in 2004 and 7.6% in 2005 after the 7.1% growth in 2003, the report says. Domestic demand is forecast to increase by 8.7% and 8.1%, and exports by 16.3% and 12.0% in 2004 and 2005, respectively.

Risks to the outlook include rising inflation and possible public health scares. Inflation is likely to reach about 9% by end-2004 due to higher food prices and rising international commodity prices and then ease to 6.0% in 2005. Inflation above these levels could exert upward pressure on the prime interest rate, real wages and the foreign exchange rate.

Avian flu needs to be closely monitored by the public health authorities as the disease has been reported as recurring in 11 provinces over recent months, though there has been no serious spread of avian flu to humans.

Domestic demand will be supported by a continued expansionary fiscal stance. Industry is likely to grow by about 10% in both years due to higher international oil prices that benefit Viet Nam as a net oil exporter. Growth in services is estimated at 7.5% in both years.

The agriculture sector, which includes fisheries and forestry, will likely grow by 2.5% in 2004 partly because of slower growth in traditional agriculture and forestry, but it is likely to edge up to 2.7% in 2005 due to expansion of fishery activities.

With the ending of the Multifibre Arrangement quotas at the end of this year, members of the World Trade Organization (WTO) including many of Viet Nam's competitors will secure greater export opportunities. Viet Nam, yet to enter WTO, will still face constraints on its garment exports. But a new quota with the U.S. and an expanded quota with the EU, and market diversification are likely to make the prospects reasonable for garment exports in 2005.

The trade deficit is forecast at $3.8 billion in 2005, narrowing from ADB's April forecast of $4.5 billion due to a better than expected 2004 first-half export performance and higher prices for export commodities such as crude oil, rice, pepper, tea and coffee. Remittances from Vietnamese living abroad have become a major source of foreign exchange, exceeding both foreign direct investment flows and official aid flows.

ADO Update says, "The economy needs to create jobs faster than it has in recent years to absorb the greater numbers of new entrants to the labor market."

Read the full report.

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