Two Major Bottlenecks of Vietnam Economy

Credit growth marginally increased 0.57 percent in the year to July 25.

 

The drop in credit growth is a rarely seen phenomenon in Vietnam in the past years. This also heralds a low credit growth this year. The actual growth may be much lower than the initial target of 15 - 17 percent and lower than growth rates in previous years (12 percent in 2011, 27.7 percent in 2010, 37.7 percent in 2009, 30 percent in 2008, and 51.4 percent in 2007).

 

Notably, the low credit growth was coupled with a high growth in liquidity, which climbed 6.56 percent as of July 20. This indicated that money is still kept at banks rather than pumped into the economy.

 

Experts cited two main reasons for this reality.

 

First, borrowers did not want to accept loans bearing high rates although interest rates have been significantly slashed. Many decided to wait for even lower rates.

 

Second, banks did not lend risk-prone consumers because they fear increased bad debts. Bad debts have become a drag on credit flows.

 

Although inventory growth has slowed down in some sectors, it remains quite high. For instance, the inventory index of processing industry was 34.9 percent on March 1, 32.1 percent on April 1, 29.4 percent on May 1, 26 percent on June 1, and 21 percent on July 1.

 

High inventory indices are seen in most industries from food to industry, construction, real estate, and from production to trade and even bank capital.

 

High inventories are caused by many reasons. Shrinking production, business and investment resulted in a demand contraction. Inventories are also attributed to weakening consumer demand and purchasing power.

High selling prices are also cited as a reason for growing inventories. Prices leaped 11.2 percent from a year ago. If income growth is lower, consumer spending will surely drop.

 

This may be caused by psychological factors. Consumers tend to increase savings and even tighten their belt because of high inflation over the past two years and slowing economic growth.

 

Credit growth and inventory have left adverse effect on various socio-economic aspects, especially economic growth. Although the growth bottomed out from the first quarter when the second quarter growth was higher, the half-year growth was much lower than that in the same period in 2011.

 

In the first seven months, more than 30,000 companies filed for bankruptcies. This number will rapidly increase if no appropriate policies are adopted.