Boosting aggregate demand effectively and cautiously

The 6.7% growth target set for 2017 is currently considered as a tough goal to achieve as GDP in the first quarter grew by only 5.1% in comparison to a year ago, much lower than the same period of the last two years and only slightly higher than the 2012-2014 period.

With such a low figure for the first quarter, expansion in the three remaining quarters must reach at least 7.1%, a rate that has not been attained since 2011, for Vietnam to fulfil its growth target. In addition, macroeconomic stability still needs to be stabilised while pursuing high growth. That is why it has not been easy to solve the 2017 economic growth problem.

If Vietnam wants to achieve high economic growth in the short term, GDP must grow by 6.26% in the second quarter, 7.29% in the third quarter and 7.49% in the third quarter. The primary focus should be boosting aggregate demand but such a move must guarantee that it will not cause instability and get in the way of the overall economic restructuring process.

Boosting aggregate demand by increasing investment, especially State investment, is a simple way to increase economic growth. However, State resources are currently strained due to wide spending deficit while capital from borrowing is also restricted by a public debt ceiling.

In that context, increasing the size of public investment, including implementing a number of large projects as suggested by the Ministry of Planning and Investment (MPI), is virtually unfeasible.

Boosting aggregate demand by increasing the ratio of social investment to 35% of GDP as recommended by the MPI is reasonable but should be done in a way that encourages private and foreign investment instead of public investment.

Another important way to boost aggregate demand is stimulating consumption. Rising inventories and surpluses of a number of goods, especially agricultural produce, indicate an imbalance between supply and demand. Such measures are aimed at raising producers’ income, stabilising prices and channelling bank credits to consumption loans instead of poorly performing and risky sectors such as the property and stock markets.

There is still a high chance that Vietnam will meet its 2017 growth target but the more important goal is supporting the economy to achieve long-term and sustainable high growth. Therefore, it is necessary to take a cautious approach to ensure measures to boost aggregate demand are effective.

(Source: NDO)