Vietnam Economy in First Half 2009: Preventing Trade Deficit, Increasing FDI

According to statistics of the first half of 2009, Vietnam economy shows some signs of recovery in spite of the continued world economic crisis. One of the bright spots is stable FDI inflow ensuring stable economic development.

 

Initial statistics show that GDP growth rate in the second quarter of 2009 is 4.5 percent and 3.9 percent in the first half of 2009. It is much lower than the same period of 2008 (6.5 percent), 2007 (7.87 percent) and 2006 (7.4 percent), but higher than the first quarter of 2009 (3.1 percent). The growth rate of 4.5 percent in the second quarter can be considered as a sign that the worst economic situation might be over. Discussing with the press on the issue, Dr. Nguyen Minh Phong (Hanoi Institute of Socio-Economic Study) believes that the growth rate is most encouraging especially when World Bank forecasts a further recession this year with most of the world economies suffering minus growth rates. Dr. Phong also thinks that if the growth rate continues, Vietnam can possibly attain the target of 5 percent set by the National Assembly recently, with 3.48 percent in industry-construction, 5.5 percent in service and 1.25 percent in agriculture. Moreover, the industrial value in the second quarter increased 7.4 percent (1.25 percent in first quarter and 4.8 percent in the first six months). Meanwhile, in the construction sector with the stimulus package the growth increased 16 percent in the second quarter, 3 percent more than the first quarter.

 

According to the Ministry of Trade and Industry, though the growth rate in the first half of 2009 was lower than that of the same period in 2008 (16.5 percent), the industrial growth is stable in spite of the smaller market.   Regardless of natural calamities, diseases and unstable prices of materials, the agriculture-forestry-fisheries value in the first half of 2009 increased to VND96,800 billion, 2.5 percent more than the same period last year with agriculture of VND70,800 billion and fisheries of VND22,700 billion increasing respectively 1.8 and 4.3 percent.

 

With its economic growth, Vietnam continues to attract FDI. In the first six months, FDI increased by US$8.87 billion. Though the increase was only 22.6 percent of the same period of 2008, it remains high in the context of the current world economic crisis. It is expected that by the end of 2009, Vietnam will attract US$20 billion in FDI with disbursement of US$8 billion.

 

Although there have been bright spots, there are still several hurdles ahead especially in industrial production and export. The export target might not be attained even it has been readjusted from 13 percent to 3 percent. It means over US$37 billion must be achieved in the second half of 2009 or US$6.2 billion a month, a high target. Dr. Phong also pointed out that several export items of “US$1billion club” have been decreased by 10-15 percent while export prices also reduced especially in crude oil, rubber, pepper, coffee, cashew nut, rice, coal, tea. Vietnamese export growth depends much on the world market.

 

Another problem is the export value in the first half was worth only US$40.64 billion or 31.6 percent less than the same period last year but with trade deficit 7.6 percent of the export value. In June alone, the trade deficit was nearly US$1 billion for the third month in a row. According to the Ministry of Trade and Industry, the trade deficit in 2009 must be in the range of US$10-12 billion, or two thirds of 2008. However with the inflow of foreign exchanges decreasing, the trade deficit by the end of the year will affect the exchange rate between Vietnamese Dong and US dollar.

 

According to the National Centre of Socio-Economic Forecast, the economy can be with a growth rate of 4.5 percent with CPI of 7.51 percent or with better scenario of 5 percent and 9 per cent respectively but with inflation of 9 percent. However, the second scenario requires the improvement of the US, Japanese and EU economies in the fourth quarter and the efficiency of stimulus package of the government.