First Eight Months: Unsustainable Growth

The Ministry of Planning and Investment said the Vietnamese economy was optimistic in August and in the first eight months of 2010 as all economic sectors advanced in comparison with the same periods of 2009. The macroeconomic balance generally remained stable but unsustainable.

The August consumer price index (CPI) climbed 5.08 % from the end of 2009 and 8.61 % from the same month in 2009. Gold price index rose 37.78 % and the U.S. dollar price index advanced 7.05 %. The target of tapping inflation at 8 % in 2010 is within reach.

 

Export revenues in August were estimated at US$6 billion, down 0.5 % from the previous month while imports were valued at US$6.9 billion, down 5.5 % from July. Although the quantity of imports decreased, higher prices caused a jump in value. The August trade deficit was in the region of US$900 million, an equivalent of 15 % of exports, bringing the eight-month trade gap to US$8.15 billion, equal to 18.3 % of exports. Steady global trade expansion is a positive signal for Vietnam to boost exports. Besides, the economic recovery and demand expansion in emerging and developing economies, raging natural disasters and droughts will increase the needs for foods in many countries. This is a favourable condition for Vietnam to bolster the exportation of main agricultural products.

However, apart from positive signals, there are still some risks against economic growth in the remaining months of 2010. In the past time, consumer demand in the U.S., Europe and Japan tended to decline, causing adverse impacts on both exports and imports of Vietnam. In the past three months, exports tend to decrease month on month (August exports slid 0.5 % from July; July exports tumbled 8.2 % from June, August and July imports sank 1.5 % month on month). If this situation will not improve in the future, the export-relying economy like Vietnam will be negatively affected.

 

In addition, credit growth is very slow in the past eight months, estimated at less than 15 %, while declining interest rates make the 25 % growth target in 2010 harder to reach. Higher borrowing costs inhibit businesses from approach bank loans.

 

The US dollar tends to appreciate after a long time of depreciation. This is causing the domestic shortage of foreign currencies as many are hoarding foreign currencies to settle debts. The liquidity of foreign currencies is expected to wane, especially in the banking system. The State Bank of Vietnam (SBV) decided to increase the VND/USD exchange rate by over 2 % last month as a result of a long-time pressure on exchange rate adjustments. Appreciating greenback will increase pressure on the trade deficit, trade balance and control inflation.

 

Although the Government has adopted policies, measures and solutions to bolster economic growth, and overcome persistent difficulties, the key is how they are put into reality.