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"No Miracles But Robust" ADB Reports on Viet Nam's Economy after WTO Accession

HANOI, VIETNAM (17 September 2007) – Although Viet Nam's accession to the World Trade Organization (WTO) in January this year has not resulted in any miracles, Viet Nam's economy is robust and continues to expand rapidly with GDP growth of 8.3% in 2007, and 8.5% in 2008, the Asian Development Bank (ADB) said in a major report released today.

"Those who have expected miracles from Viet Nam's WTO accession may feel differently, but the country indeed has been making a good progress in its economic development and reforms" says Ayumi Konishi, ADB Country Director to Viet Nam. "Buoyant investment and consumption drove robust economic growth in the first half of this year. A surge in imports, partly investment-related, widened the trade deficit more than expected, but it is not a matter of concern. Although the increasing inflation will require careful attention of the Government, we consider inflation is also under control. What is most important for Viet Nam continues to be the acceleration of reforms and faster implementation of development projects through simplification of procedures."

The Asian Development Outlook 2007 (ADO) Update, upgraded developing Asia's 2007 growth forecasts from 7.6% anticipated in March this year to 8.3%. As to Viet Nam, growth accelerated in the January-June period at 7.9%, which is a half percentage point faster than a year ago. Since GDP usually picks up in the second half of the year, mainly because budget disbursement accelerates, economic growth for all 2007 is forecast to be 8.3%, unchanged from the ADO 2007 projection.

Nearly all the economic expansion in Viet Nam came from industry and services, and the dynamism of private sector is noted with expansion of 20.5%, more than double the pace of state enterprises. Among subsectors, manufacturing grew by a robust 12.4% but, mining showing minimal growth suffered from a 7.4% contraction in crude oil production as output at the White Tiger oil field, the biggest in Viet Nam declined. In services, trade and finance grew by 10.4% and the hotels and restaurants subsectors benefited from buoyant consumption and increased tourism, rose by 12.7%.

On demand side, strong investment and consumption were the main drivers of the economic expansion in Viet Nam. Investment grew by 14% in the first half, stimulated by Viet Nam's entry into WTO and by improvements in the business environment. Much of investment's growth is from the domestic private sector, whose share of overall investment increased to about 35% in the first half of 2007, up from 23% in 6 years.

Buoyant investment led to a steep 30.4% increase in merchandise imports in the first half of 2007, and imports of capital goods surged by 46.5%. Imports of raw materials and intermediate goods were also vigorous. With regard to exports, following WTO accession, textiles and clothing rose by 25.9% in the first half of the year after the abolition of quotas, and wooden furniture exports also increased by 23%.

Assuming that Viet Nam's WTO accession will further integrate the economy into global business networks, encourage foreign direct investment and help maintain the momentum for domestic reforms, Viet Nam's economic expansion is expected to accelerate to 8.5% in 2008. Led by strong growth of two of its components – manufacturing and construction, industry is expected to grow by 10.6% in 2008. Services, spurred by consumption and tourism, as well as the gradual opening of some sectors to foreign participation, is projected to grow by 8.6% next year. Trade benefits from WTO accession are expected to keep export growth brisk in 2008 at 22%. As to inflation, the level is expected to be contained at 7.8% for 2007, and it is expected to be reduced further to 6.8% in 2008. The situation is therefore considered to be under control, although the relatively high level of inflation calls for the Government's close attention.

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