Growth target under threat

Firms’ high inventory levels and negative credit growth are symptoms of economic stagnancy

The Ministry of Planning and Investment (MPI) last week reported that Vietnam’s inventory level in this year’s first four months grew 35 per cent, far higher  than 14.6 per cent in last year’s same period.

The government now sees that continued local production difficulties could make its target of 6-6.5 per cent economic growth for 2012 “difficult to touch.” The gross domestic product (GDP) growth rate was 4 per cent in the first quarter of 2012 and is expected to be 4.5 per cent in the second quarter.

Key products with high inventory rates in this year’s  first four months include chemical fertilisers (up 63.4 per cent year-on-year), cement (up 44.2 per cent), motorbikes (up 38.9 per cent), garments (up 35 per cent), plastic products (up 102.2 per cent) and prefabricated metal products (up 101.5 per cent).

Notably, the industrial production index (IPI) in April augmented 7.5 per cent year-on-year from March’s 6.5 per cent. It rose only 4.3 per cent in this year’s first four months against the corresponding periods of 2011.

Meanwhile, the IPI in the first four months of 2011 and 2010 increased 14.2 and 13.5 per cent year-on-year, respectively, according to the General Statistics Office (GSO). During January-April of 2012, important industries witnessed IPI growth, such as the mining industry (up 2.6 per cent), the processing and manufacturing industry, which contributes 75 per cent of the added value of the country’s whole industrial sector (up 3.8 per cent) and production of electricity, gas and water (14 per cent). Meanwhile, these industries’ rates during the same period last year were far higher. For instance, the mining industry grew 37.9 per cent against 2010’s first four months.

Industrial production in this year’s January-April  faced many difficulties, particularly small- and medium-sized enterprises and enterprises operating in the processing and manufacturing industries.

“Firms’ current difficulties are high prices of input materials, while the domestic purchasing power is decreasing, pulling down enterprises’ sales,” said an MPI report. The government reported that, since early 2011, some 68,000 enterprises have either disbanded or ceased operations. But  according to the Vietnam Chamber of Commerce and Industry (VCCI), that figure was 79,000 enterprises.  

“If there is no effective measure to fuel local production and business, it will be very difficult for the government to reach its economic growth rate and ensure social security,” said Government Office Minister Vu Duc Dam.