Rough economic seas remain in the forecast

Authorities are still on the look out for unnecessary imports

General Statistics Office (GSO) report revealed there was a slowdown in the production of many important products in July such as cattle-feed, cement and fertiliser. The industrial production value rose 12.3 per cent year-on-year, but down 1.2 per cent against the average growth during the past seven months.

Difficulties in expanding export and domestic markets have hurt manufacturers, according to the GSO.

“Slowing industrial production in July indicates that there is a negative undercurrent in the economy. Challenges remain threatening the economy in second half this year,” said Le Dinh An, former director at National Centre for Socio-Economic Information and Forecast.

The trade deficit, industrial production slowdown and difficulties in mobilising funds from banks were big challenges, he said.

The GSO reports export turnover in July was estimated at $5.8 billion, down 8.2 per cent against June. The reduction in exports last month implied that the recovering demand in major markets like the United States and European Union was not strong enough for local exporters, said Nguyen Minh Phong, head of the Hanoi Institute of Economic and Social Research and Development’s Economic Research Department.

Meanwhile, the trade deficit reached $7.4 billion at the end of July, equivalent to 19.5 per cent of export turnover.

Though trade deficit is still at a controlled level set by the National Assembly at 20 per cent of export turnover, An said it could continue rising in the second half of this year as “Vietnam is too dependent on imported input materials, machinery and equipment”.

Phong said industrial manufacturers would not continue expanding production unless they found steady demand in domestic and export markets.

“Manufacturers have been restocking enough goods over the first six months. Certainly, they will slow production after difficulties in exporting and expanding domestic market,” he said.

The inventories of processed industrial goods in the year through July 1, 2010 increased 138.6 per cent year-on-year, according to the GSO, while the consumption ratio of the goods rised only 112 per cent during the same time.

Difficulties in accessing loans from local banks is also big factor hindering industrial production.

Though Prime Minister Nguyen Tan Dung ordered the State Bank to try its best to lower lending interest rates, the rates remained at high levels, around 11-15 per cent per year.

To solve these challenges, An said it was essential for the government to urgently establish commercial distribution nationwide to boost domestic consumption and push up the implementation of production restructuring to reduce dependence on imported input materials.

An said the economic growth would reach 6.5 per cent this year as targeted by the government. “But if the slowing trend of industrial production does not change in next months, the economy would fall into deflation,” he added.