Consumer demand leverages economy

2015 has been a year full of difficulties for Vietnam’s economy. Yet we have managed to end the year with 6.68 per cent GDP growth and 0.63 per cent inflation. As the chief of the advisory body for the government on macroeconomic management, are you pleased with these results?

It has been a rather special year for Vietnam’s economy. From 2011-2014, the economy witnessed slow growth and we had to work hard to stabilise the macroeconomy. Since 2014, the economy has started to recover. 2014 was also the first year that saw the local economy grow over the set target (5.98 per cent, compared to the planned 5 per cent). In 2015, we once again saw high growth.

For 2015, we set a target of 6.2 per cent GDP growth, which was a record high percentage compared to the past four years. The government forecast for GDP growth was just 6.5 per cent. However, based on thorough calculations, GDP growth reached 6.68 per cent, marking the highest over the past eight years. It is particularly impressive given that the consumer price index (CPI) dipped sharply to a mere 0.63 per cent.

Since the CPI dropped significantly, people may ask why it went down so much. I want to reassure them that because total consumer demand has risen rapidly, Vietnam’s economy is well on its way to a full recovery, and there is not a hint of deflation.

Rising consumer demand is one of the key drivers of the Vietnamese economy-Photo: Le Toan

What has fuelled the economic recovery?

Well, we began 2015 with various challenges, three of which were particularly notable.

The first was the global economic slowdown that resulted in a drop of demand and commodity prices across global markets. Vietnam’s export markets were substantially reduced in number, particularly those that purchase local products such as rubber or seafood.

The second was the oil price plunge, which hurt our budget structure. In late 2014, we expected the oil price to settle at $100 a barrel, but in 2015, the price averaged out at $50 a barrel.

The third challenge came down to currency issues, when China adjusted its monetary policy through the yuan devaluations. This, in turn, created many difficulties for our economy in 2015.

However, we may say that our policies in response to these challenges were relatively quick and effective. These problems were therefore resolved in a satisfactory manner. Despite the oil price plunge, our total budget revenue did not slide. In fact, it even rose. This proved that our original forecast was right in that even with the lower oil prices resulting in a budget deficit, we enjoyed lower input prices, which consequently lowered commodity prices. These effects had a positive impact on economic growth.

The contributors to 2015’s growth chiefly included the recovery and strong growth of industrial production, particularly the processing and manufacturing industries. In addition, the rapid increase of production and exports among foreign direct investment (FDI) businesses also supported the economy, coupled with improved domestic consumption, consumer purchasing power, and aggregate demand. Most of these factors stemmed from increasing consumer confidence due to the stabilisation of the macroeconomy, recovering economic growth, and low inflation.

I also want to highlight the initial impacts of newly-passed laws, which are expected to improve the business environment, such as the amended laws on Enterprises and Investment.

In 2015, the number of newly-established enterprises climbed 26.6 per cent and the total registered capital rose 39 per cent, year-on-year. The number of businesses resuming trading operations also rose substantially.

Additionally, numerous signed free trade agreements (FTAs), as well as the implementation of drastic measures to improve the business environment in accordance with Resolution 19/NQ-CP on improving the local business climate also motivated and fostered economic growth in 2015.

As you have said, results in 2015 could leverage the economic growth in 2016. However, many concerns remain over the challenges in 2016. What is your opinion on this and the possibility we will achieve the set target for the year?

2016 will be the first year of the new five-year economic plan. The momentum achieved by growth in the last two years will set solid groundwork for us to meet the target of 6.7 per cent growth in 2016.

However, we have been facing enormous challenges, like the sluggish and unstable recovery of the global economy. Our economy has been opened wide to world markets, and along with this come global market fluctuations that could affect Vietnam. For instance, oil prices, which are currently at $35-$36 a barrel, are expected to rise to $60 a barrel. If the price of oil remains this low for too long, it will be a major obstacle for our state budget and oil sector development.

Another challenge is the development of small- and medium-sized enterprises as well as enterprises operating in supporting industries. Last year, although the number of businesses ascended, their quality was questionable. If we fail to build a strong private sector, the economy will be unable to compete in global markets.

So I hope that the amended laws on Investment and Enterprises will add incentives for private sector growth. If we ignore this opportunity, we will not be able to achieve more. We will need about 500,000-600,000 strong businesses to ensure sustainable development. We will also require at least two million businesses with good investment strategies, leading products, and a sharp competitive edge.

Labour productivity is also crucial. In order to overcome the middle income trap, we must raise our national productivity. This will remain a challenge not only for 2016, but also for many years to come.

Last but not least, in 2016, we will jump-start a process of thorough and comprehensive integration with the region and the world through the establishment of the ASEAN Economic Community (AEC) and the approval of many FTAs. We will now enjoy the free flow of goods, investment, and skilled labour. Integration will open our borders to competition. Whether we can enhance our competitiveness to take advantage of the opportunities it will afford us is also one of our biggest concerns.

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