Potential Risk of Inflation

Vietnam’s GDP in the first six months of 2009 increases by 3.9 percent, the lowest growth rate during the past one decade. The GSO states that the macro economy has not been really stable and the risk of inflation coming back is visible unless financial policies are well implemented.

 

The fact that the stock market is up in May and the first half of June, and the realty market warms up shows that there exists a psychological trend that the worst moment of the crisis is over, and that enterprises already overcome the bottom of the crisis not as badly as earlier broadcasts. However, some local reports show quite somber figures. Vinh Phuc has a minus growth rate of 4.3 percent, Phu Tho witnesses a minus growth rate of 3.1 percent in its industry and construction areas, and heaps of enterprises have to deal with their goods in stock in stead of making investment in production expansion. According to Mr Bui Ba Cuong, Head of National Accounts Division, in 2008, the inventory rate makes up about 5 percent of GDP (US$4.5 billion). Enterprises accelerate promotion activities with an aim to dealing with such goods in stock and collecting money.

 

Meanwhile, export witnesses a growth rate of minus 10 percent. Though such major products for export as rice and crude oil enjoy increases of 56 percent and 25 percent in terms of quantity, the decreases in global prices make export value decline. The minus growth rate of Vietnam’s export might be even greater without the luck of gold being re-exported when its global price rockets. According to Mr Bui Ba Cuong, if gold is included in the export list, export declines by 10.1 percent, but if it is excluded, the decline rate is 18 percent. The contribution of gold to GDP growth rate can be seen via this statistics. The trade gap in the first six months of the year is about US$2.1 billion. If the value of gold being re-exported is subtracted, the trade gap amounts to VND4.6 billion.

 

Deputy Minister of Industry and Trade, Mr Bui Xuan Khu, says that the direct cause which affects export turnover in the last six months is the reduction in global prices o Vietnam’s major products for export. Due to impacts of the global crisis, traditional export markets of Vietnam are narrowed as well. The total export turnover of Vietnam is estimated to reach US$27.57 billion. The export target for 2009 is US$64.57 billion which is not easily reached at all.

 

Exchange rate is also a factor which pushes prices in Vietnam to rise. In the first six months of 2009, the index of USD goes up by 5.3 percent. Materials, machines and equipment for production mainly depend on import.

 

The global economy has shown good signs of recovery. Therefore, demand for materials and energy for production goes up and price of goods, especially of necessary materials may witness sharp increase. Vietnam’s import excess in the last six months can be higher than that in the first half of the year.

 

Another figure which is worth noted is state bugdet collection in 2009. The National Assembly estimates a sum of about VND390,000 billion. Together with the stimulus policy, it is possible that the overspending will amount to 7 percent of GDP.

 

The concern of inflation has more ground when the figure of the Ministry of Planning and Investment gets considered: total payment instrument has increased by over 16 percent, and credit growth, over 17 percent. If GDP is calculated according to real price, its growth rate in the first six months of the year is 12.4 percent. Meanwhile, the inflation rate is 10.27 percent. The growth pace of money supply has surpassed that of GDP, which means that money outnumbers goods and a pressure of price increase is certain.

According to the National Centre for Socio-Economic Information and Forecast, CPI in 2009 will be around 7.51 percent. However, there is no exception that the inflation rate can be at a higher rate if price controlling measures are not paid attention.