Economy smartly exceeds forecasts

The sky is the limit as Vietnam’s bright economic outlook provides the building blocks for growth

Speaking at the government’s monthly press conference in Hanoi last week, Minister and Chairman of the Government Office Nguyen Xuan Phuc said the government was optimistic about 2010’s economic outlook.
“The economic recovery is on the right track and the economy could grow at least 6.5 per cent this year,” said Phuc.

The Ministry of Planning and Investment (MPI) forecasted that economic growth in the second quarter was 6.2-6.3 per cent and in the third quarter this year it could hit 6.5-7 per cent.

Vietnam’s economic slow down in 2009 was due to the global economic recession. However, the economic growth rebounded from 3.1 per cent in the first quarter 2009 to 5.83 per cent in the first quarter 2010. The National Assembly’s targeted economic growth was at 6.5 per cent this year.

Phuc said the government’s optimism was based on sound recovery signals. Vietnam’s industrial production value in May grew 13.8 per cent year-on-year. The increase is three times higher than the same period last year. Meanwhile, export turnover increased 12.6 per cent year-on-year and trade deficit was showing signs of narrowing.

The General Statistics Office (GSO) reported that trade deficit in May accounted for 20.8 per cent of total export turnover, down from 25 and 23.1 per cent in March and April respectively.

Martin Rama, lead economist of the World Bank in Vietnam, agreed that Vietnam’s economy was recovering well. He said Vietnam had stabilised and ensured economic recovery better than many other countries.

He cited export growth in recent months as strong evidence for a recovery. With existing recovery momentum, the economy had enough capacity to grow at 6.5 per cent or even higher, said Tran Dinh Thien, director of Vietnam Economic Institute.

He said the global economy was recovering slowly and the Euro zone, a big export market for Vietnamese companies, would not seriously impact on the country’s economic growth. “Investment, including foreign direct investment (FDI) and domestic consumption will be driving forces for the economic growth in Vietnam,” Thien said.

The MPI’s Foreign Investment Agency last month reported FDI disbursement capital during the past five months at $4.5 billion, a 107 per cent year-on-year increase. The government is also urging state authorities to push the disbursement of government bond-funded and state budget-funded projects to ensure economic growth.

Total retail turnover in May increased 27.1 per cent against the same period last year, implying strong consumption in the domestic market. Despite the recovery, Phuc said the government was aware that the economy still faced challenges.
The consumer price index has been slightly increasing in recent months with 0.75, 0.14 and 0.27 per cent rises in March, April and May respectively. But, economists warned high inflation could return if the government did not carefully control the commodity prices.

Business community complaints that high lending rates and electricity shortages were hindering their operations. Currently, the average lending interest rate is at around 14 per cent per year. Last week, Prime Minister Nguyen Tan Dung asked the State Bank to reduce lending interest rates.

The Ministry of Industry and Trade also required Electricity of Vietnam, the country’s sole electricity distributor, to improve power supply to prevent electricity black outs.