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Vietnam Economy Highlights

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[FDI] Vietnam is eager to hear ideas on ways to boost its investment environment, Deputy Prime Minister Hoang Trung Hai said at the World Economic Forum (WEF) on East Asia on June 19. The Deputy PM was hosting a working session with the theme of “Vietnam’s Economy”, co-chaired by Sushant P Rao, head of the WEF’s East Asia region. Hai said he highly appreciated the role of foreign investors in the development of Vietnam and was confident that the country would remain a favourite destination for investors.

Vietnam’s sustainable economic growth in the mid-to long-term, its stable political and social environment, abundant potential sources of labour and nearly untapped local market have been Vietnam’s strong points, Hai said.

The Deputy PM said Vietnam was on its way to integrating into the world economy and was fully aware that it was not immune to the global economic crisis. Strong and effective measures by the Government to boost investment and consumption had seen visible results. He told the meeting about Vietnam’s economic strategies in the long run, especially in infrastructure development, exports, food security and preparations for climate change. - Source: Vietnam Net, 20/06/2009,4

[General] Experts have said that they can see signs of the imminent return of high inflation. Inflation has become an obsession in Vietnam, because when it occurs, commodity prices always gallop more quickly and sharply in comparison with other economies. Vietnam is a small and developing economy, and it needs a high credit growth rate if it wants to develop strongly. In order to obtain high credit growth rate, the government tends to loosen monetary policies, which bring about a risk of high inflation. Experts have also pointed out that Vietnam has been relying on imports and exports, which means that when the world’s prices increase, domestic prices always go up accordingly.

Meanwhile, the viewpoint of the government now is that while the national economy is yet to recover, obtaining a reasonable economic growth rate remains the top priority task. Some government officials believe that it is still too early to worry about high inflation.

In fact, the State Bank of Vietnam is now using a tool considered a ‘brake’: the basic interest rate. The rate is now 7% per annum, just half of the highest basic interest rate seen mid last year. - Source: Vietnam Net, 10/05/2009,2

[General] The number of unemployed laborers in Vietnam this year could climb to nearly 500,000, compared to the initial estimate of 400,000 if the economic situation becomes worse, a labor official said at a seminar in Hanoi on April 8. This means that unemployment rate will increase to 5 per cent from last year’s 4.64 per cent. According to the Ministry of Labor, War Invalids and Social Affairs, there would be 85,000 Vietnamese laborers lose job in the first quarter of this year,- Source: Vietnam Business Forum, 10/04/2009,5

[Industry] The actual industry growth in first quarter 2009 shows some signals of slow-down key industries. Inventory index of processing industry has reach over 67% compared with last year, such as: steel products 260% times, ceramic tiles 55%, apparels 76% higher than stocks in the same period of last year. Many enterprises in Binh Duong, Dong Nai, HCMC did lay-off over 20% workforces. The overall industry growth is still reaching 2.1% yoy, in which contribution from States Enterprises -3.2%, Non-states enterprise +5% and FIEs +2.9%- Source: Vietnam News Agency, VietTrade Net, 02/04/2009,6

[General] Prime Minister Nguyen Tan Dung yesterday suggested adjusting this year’s predicted GDP growth rate from 6.5 per cent to 5 per cent, as he chaired the Government’s online conference for March.The suggestion was given out after the Government reviewed the country’s socio-economic developments in the first quarter and set targets for the rest of the year. Despite the fact that the economic downturn had affected every field, particularly export and investment, the economy had remained stable with a first-quarter growth rate of 3.1 per cent, Dung said.

The State Bank of Viet Nam has to continue to adjust the prime rate and discount rate and subsidise loans at an interest rate of 4 per cent, as well as provide loan guarantees for business to import equipment and new technology.- Source: Vietnam News, 31/03/2009,1

[General] Vietnam·s GDP growth slowed to 3.1% year on year in the first quarter of 2009, according to the estimates published by the General Statistics Office of Vietnam, the slowest pace on record. Nevertheless, the slowdown was less severe than had been expected, and the release of the data ahead of the end of the first quarter does raise some questions over the reliability of the data. Supply-side data show that value-added output from agriculture, forestry and fisheries slumped to just 0.4% year on year from 3.8% in the whole of 2008, while output from industry and construction edged up by just 1.5%, a considerable slowdown from the 6.3% gain in the whole of 2008. Within this sector, manufacturing output contracted by 0.3% after double-digit gains throughout the preceding three years reflecting weak exports (excluding gold and crude oil, exports dropped in value terms by 3% year on year in the first quarter). Meanwhile, the services sector lost a little momentum (growing by 5.4% after a 7.2% gain in the whole of 2008), as most sub-sectors maintained fairly strong growth. However, the hotels and restaurants sub-sector saw output drop by 1% after gaining by 8.5% in the fourth quarter of 2008.

The first-quarter performance was stronger than the Economist Intelligence Unit had expected, owing to the strong contribution from the services sector (which contributed 2.4 percentage points to overall growth). Within services, retail and wholesale trade grew particularly strongly (by 6.6%, contributing 1.2 percentage points to overall growth); a surprising feat given that unemployment is rising at the same time that double-digit inflation is eroding real incomes. (Moreover, agriculture, which accounts for around 50% of total employment, grew by just 0.4% in the first quarter). The sharp drop in the import bill (by around 45% in the first quarter), although largely owing to falling prices, would also suggest that domestic demand has weakened, and with it retail and wholesale trade. Furthermore, the construction sector also out-performed expectations (up by 6.9% year on year, contributing 0.4 percentage points to overall growth), despite a slump in foreign investment and financing constraints. In addition, the 1% contraction in output from "hotels and restaurants" and the 8.2% gain in "transport, communication and tourism" seem somewhat upbeat given that official data show that the number of foreign visitors fell by 16.1% year on year in the first quarter. Our outlook for Vietnam therefore remains bleak, although based on official data, Vietnam will be one of a few countries in the region to escape an economic contraction this year. The government has now accepted that its target of 6.5% growth this year is unattainable, with the official forecast now standing at 4.8%-5.6%. Despite concerns over the reliability of Vietnam·s official GDP data, in light of the government·s estimate for growth in the first quarter, we will be raising our GDP forecast for 2009 slightly from its current level of 0.3%. - Source: EIU, 30/03/2009,3

[FDI] Viet Nam is more attractive than Thailand in terms of foreign direct investment (FDI) attraction amid the global economic slowdown, according to the latest survey conducted by KAE Marketing Consultant Company. The survey was based on opinions of leaders from big foreign companies operating in Viet Nam and Thailand.

According to the survey, up to 63 per cent of the interviewees have selected Viet Nam for their investment while just 21 per cent believe that Vietnam’s investment environment is better than Thailand’s and the remaining 15% said the two country bring foreign investors the same opportunities. Damien Duhamel, Director of KAE Asia said, “Viet Nam has gained impressive GDP growth of over 7 per cent over the two past decades”, adding that the country’s economic prospect is obviously better than Thailand in both the short and long-term.

Since 2006, the country has been a favorable destination for foreigners. It attracted US$20 billion in 2007 and more than US$60 billion in 2008. As Vietnam’s GDP rate per capital is four folds lower than Thailand and two folds than China, therefore, it promises great prospect for consumption growth.

Seck Yee Chung from Baker & McKenzie Law Company expressed his belief in Vietnam’s good economic growth this year. Duhamel also forecast that Viet Nam will be among countries obtaining growth of 15%, 20% and 40% in the areas of auto, health equipment and e-commerce in the coming time.

Duhamel, however, warned of risks for foreign investors in Viet Nam such as prices hike and CPI soar. - Source: Vietnam Capital Networks, 20/03/2009,7

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