Problems in the banking system continued to dampen Viet Nam's economic growth in the first half of 2013 by curbing credit and investment. Subdued private consumption and fixed investment held growth in gross domestic product (GDP) to 4.9% in January-June. Growth picked up to 5.5% in the third quarter and is expected to maintain this pace through year-end. The central bank has reduced policy interest rates by 800 basis points since early 2012, including cuts amounting to 200 basis points this year, with slight impact on credit so far.
|Selected Economic Indicators (%) - Viet Nam||2013||2014|
|ADO 2013||Update||ADO 2013||Update|
|Current Account Balance (share of GDP)||6.9||5.2||5.6||4.1|
Source: Asian Development Outlook (ADO) 2013 Update; ADB estimates.
The government has taken some important steps to address banking sector weaknesses. Notably, it formed an asset-management company to acquire banks’ nonperforming loans and established a steering committee to improve coordination between agencies in implementing bank restructuring. Gradual progress on improving the health of banks is seen paving the way for slightly higher economic growth in 2014.
Inflation has decelerated sharply from over 20% in October 2011 to an average of 6.8% in the first 9 months of 2013, largely because of declining food price inflation. Sluggish domestic economic activity and soft global commodity prices have also helped. Forecasts for inflation are revised down from the Asian Development Outlook (ADO) 2013 in April.
Exports have benefited from the expansion of foreign-invested manufacturing companies that produce mobile phones, electronics, and computers. Rising exports of these technology products have strengthened the trade balance and contributed to current account surpluses since 2011. Surpluses are still projected this year and next, but smaller than forecast in April as growth in imports has started to quicken.
Source: ADB. 2013. Asian Development Outlook 2013 Update. Manila.