Weaker growth in many sectors
According to the General Statistics Office (GSO), Vietnam’s GDP growth in the first quarter of 2017 reached only 5.1%, lower than the 6.72% and 5.48% expansion rates in the same period of 2015 and 2016 respectively. Head of the GSO’s Department of National Accounts Ha Quang Tuyen said there were three reasons behind weaker than expected growth in the last three months.
Firstly, the lingering effects of drought and saltwater intrusion from last year led to a sharp reduction in rice growing areas, which in turn caused a contraction in the plant cultivation subsector.
Secondly, industrial growth slowed to 4.1% from 7.4% recorded in the first three months of 2016, mainly as a result of a manufacturing slowdown. Notably electronic production shrank 1% compared with 11.3% growth last year as a result of Samsung’s poor performance.
Thirdly, the mining sector was affected by the government’s endeavour to balance growth and natural resource exploitation as part of a drive to restructure the economy and renew the growth model.
Tuyen said if it had not been for the record number of newly established enterprises in 2016, Vietnam’s growth in the first quarter could have been lower, with a 10% contraction in the mining sector.
He added that although the global economy was seen as recovering but a survey of 20 countries around the world showed that only 11 achieved better growth while the rest saw equal or even slower growth. As such, Vietnam’s slowdown in the first quarter was in line with the global trend.
According to GSO Director Nguyen Bich Lam, despite slowing down, Vietnam’s economy in the first quarter still saw positive signs in exports, international arrivals and foreign direct investment attraction.
In addition, while industry and agriculture were struggling, the services sector posted solid growth at 6.52%, the highest level since 2012 and contributing 2.65% to overall economic growth.
Strong jumps needed
Currently Vietnam’s economy faces many difficulties, especially in a world of economic instability as a result of policy changes, rising debt levels in emerging economies and the instability of financial flows. In addition, the US Federal Reserve’s interest rate hikes have caused the US dollar to rise considerably compared with other currencies and made global monetary policy more complicated. Rising foreign debt and public debt of many countries have also caused many commodities such as crude oil, metals and industrial materials to go down in prices.
The GSO director stated that in order to achieve the growth target of 6.7% for the whole year, GDP must expand by 7% in the remaining nine months, something which Vietnam has never achieved since 2011. This is a formidable challenge, especially when the government is still adjusting prices on a number of services and goods, creating mounting pressure on inflation. Other economic balances such as the ratio of public debt to GDP will also face challenges.
It is clear that the 6.7% target will be hard to achieve if there are not growth surges in the remaining quarters. Economic experts suggest that the government continue to pursue a proactive and flexible monetary policy closely combined with fiscal policy and other macroeconomic policies to curb inflation, stabilising the economy and supporting growth.
In addition, it is necessary to foster reasonable credit growth, enhancing the quality of credit and focusing on priority sectors, such as agriculture, export, support industries, small and medium enterprises, high-tech and start-up businesses. At the same time, it is imperative to strictly control government spending, practise thrift, prevent waste and adjust the prices of government-regulated goods at an appropriate time to keep inflation in check.
The government also needs to take steps to ensure public investment is put to good use, push through agricultural restructuring by promoting the use of advanced technologies and switching to plant varieties and animal species that produce higher value, appropriate to local conditions and market demand.