World Bank lowers growth forecast for Vietnam

Vietnam’s shipments of staple items like garments and seafood, which until recently saw high export growths, are not expected to fall sharply, said the World Bank’s acting country director Vietnam is expected to post gross domestic product (GDP) growth of 6.5 percent in both 2008 and 2009, lower than earlier predictions, the World Bank said in its semi-annual report released Wednesday.

In April, the Washington-based lender predicted 8 percent growth for Vietnam this year and 8.5 percent next year. But its latest prediction is still more optimistic than the International Monetary Fund’s recent forecast of 5 percent for 2009. The growth rate last year was 8.5 percent. The World Bank’s prediction is based on the expected impacts of the global financial crisis on Vietnam’s poverty reduction programs, export and investment, the bank’s acting country director in Vietnam, Martin Rama, said at a video conference. The country’s shipments of some staple items like garments and seafood, which until recently saw high export growths, are not expected to fall sharply, he said. But the global economic recession would see foreign direct investments decline, though not by too much, he said. FDI inflows have remained robust so far, with approvals this year reaching a record level of US$59.3 billion, equivalent to about two-thirds of the GDP. Assessing the government’s reaction to current difficulties, Martin Rama said the country has taken fairly good and effective action, but it should take more rapid, accurate and flexible measures. Recently, the World Bank advised Vietnam to place priority on ensuring economic stability, developing its infrastructure and improving the efficiency of investments. East Asia growth forecasts East Asian economies would probably expand at the slowest pace in eight years next year, as easing export demand and declining investment and consumer spending portend “hard times” for the region, the World Bank said. East Asia, excluding Japan, would expand at 5.3 percent next year, slower than the 7.4 percent rate the World Bank had predicted last April. Growth would probably be 7 percent this year, the bank said. Fiscal stimuli and coordinated interest-rate cuts by governments and central banks around the world have failed to reverse a worldwide economic slump and the worst credit crunch in seven decades. The World Bank Tuesday lowered its global growth projections, and predicted international trade would shrink for the first time in more than 25 years in 2009. “The contraction of output in the developed economies may well last longer and run deeper, delaying a recovery in growth in East Asia,” the bank said. “In the near term, downside risks are substantial.” The World Bank had said in April inflation would pose a greater threat to East Asia than the global slowdown this year. As crude oil and commodity prices fell from record levels, and consumer price gains peaked, it is now pointing to a worsening economic outlook. Weaker exports “Prospects for weaker exports, together with a projected decline in capital inflows, will constrain investment spending,” it said. “Private consumption is likely to be hit by more sluggish earnings, higher levels of unemployment, a reduction in household and corporate wealth, and an increased desire to save in uncertain times.” Asian governments and their counterparts around the world are spending hundreds of billions of dollars to protect their economies from the global financial crisis. Slowing inflation would allow the governments to boost growth through expansionary fiscal measures, the World Bank said. China last month announced a $582 billion economic stimulus plan, while South Korea unveiled a 14 trillion won ($9.7 billion) package of extra spending and corporate tax breaks, adding to almost $20 billion in income-tax reductions announced in September. “A number of countries in East Asia have some room to loosen policy, as fiscal positions have generally improved in recent years,” it said. “To ensure fiscal stimulus packages achieve their objective of generating demand and jobs in the domestic economy, such packages will need to be well-targeted and temporary in duration.” ‘Do better’ The World Bank said developing East Asian economies would be more resilient during the slowdown compared with other emerging-market regions such as Latin America, which it has projected will grow 2.1 percent next year. “East Asia is expected to do better than the other developing regions in the world” by growing 4 to 5 percent in the next year, Vikram Nehru, the World Bank’s chief economist for East Asia, said in an interview with Bloomberg Television earlier this week. “That’s not spectacular, but still reasonably good.” East Asia probably contributed to a quarter of global growth this year, and that may rise to a third next year, the World Bank said. “The countries in the region will be better positioned to deal with the crisis to the extent that they are able to maintain macroeconomic stability, shift exports to faster growing regions in the world, substitute external with domestic demand, and continue with their structural reforms to strengthen competitiveness,” the report said. Global forecast The bank forecast slowing growth of just 0.9 percent for the world economy and said global trade volume would fall 2.1 percent, as the financial crisis takes its toll on rich and poor nations around the world. “The global economy is at a crossroads, transitioning from a sustained period of very strong developing country-led growth to one of substantial uncertainty,” said World Bank chief economist Justin Lin. The bank’s report came amid a slew of more bad news from companies and countries worldwide. Anglo-Australian mining giant Rio Tinto said Wednesday it would slash thousands of jobs globally to cut its debt by $10 billion, as it battles falling mineral prices. Canada’s central bank said the Canadian economy has slid into a recession. The International Air Transport Association forecast that airlines would likely lose $2.5 billion in 2009. “We face the worst revenue environment in 50 years,” said Giovanni Bisignani, the chief executive of the Geneva-based association. Reported by Ngan Anh (With inputs from AFP and Bloomberg)