Vietnam Economic Growth Slows in Q1, 2016

According to the report, Vietnam’s GDP growth reached 5.46 per cent in the first quarter of 2016, lower than the same period of 2015 (6.02 per cent). Specifically, the growth of agriculture, forestry and fisheries fell 1.23 per cent, the biggest quarterly drop in many years, because unfavourable weather, saltwater intrusion in the Mekong Delta, slow consumption of agricultural products on rising concerns about food safety, and intensified competition from agricultural imports. The service sector steadily climbed 6.13 per cent and contributed 2.48 percentage points to the quarterly GDP growth.

 

According to CIEM, the index of industrial development (IIP) rose by 6.3 per cent in the reviewed period, significantly lower than the corresponding period of 2015 and the fourth quarter of 2015.

 

Regarding corporate health, the country saw more than 23,000 new business start-ups with a combined registered capital of more than VND185 trillion in the first quarter of 2016, up 67.2 per cent year on year. However, over 22,000 companies suspended operations or went bankrupt in the three-month period. Particularly, 2,919 companies were dissolved, up 13.8 per cent and more than 20,000 companies reported temporary shut-down, up 23.9 per cent year on year.

 

The State budget revenue totalled VND230.5 trillion (US$10.5 billion) in the first quarter, up 0.3 per cent year on year, equal to 22.7 per cent of the full-year estimation and equivalent to 27.1 per cent of the country’s gross domestic product (GDP).

 

State budget expenditure was estimated at VND277.6 trillion from January, equal to 21.8 per cent of the full-year estimation and up 5.4 per cent from a year earlier period. Overspending was nearly VND47.1 trillion, equal to 5.53 per cent of GDP, higher than the rate of 4.61 per cent in in 2015, 4.91 per cent in 2014 and averagely 4.86 per cent a year in the 2011-2015 period.

 

In addition, tax from crude oil dropped significantly. In the first quarter, tax revenue from crude oil was estimated at VND8.9 trillion, down more than 54.1 per cent from a year-ago period and equal 16.4 per cent of the full-year estimation. Crude oil export was forecast at VND54.6 trillion in the three-month period, dropping 11.5 per cent from a year earlier period and fulfilling 20.2 per cent of the full-year plan.

 

Mr Nguyen Anh Duong, Vice President of CIEM, said, in the first quarter of 2016, domestic revenue increased rapidly, estimated at VND193.8 trillion, representing a year on year growth of 10 per cent and fulfilling 24.7 per cent of the full-year estimation. This may be a cost burden on enterprises in the context of slowing economic growth in addition to other added costs like social insurance.

 

Before this reality, Dr Nguyen Dinh Cung, President of CIEM, said Vietnam needs to tighten public investment projects and invest in really effective projects to bring real effects to the economy. It should not make unfocused investment, particularly reducing and stopping ineffective, wasteful projects without any hesitancy. Currently, there is an existing paradox in Vietnam's economy: Inflation rate is low but interest rates are still high because banks have to compete with each other for deposits. Lowering interest rates is important to cut capital costs while domestic companies, especially private enterprises and SMEs, are facing enormous difficulties in production and business.

 

Giving a solution to this issue, Dr Vo Dai Luoc, an economist, underlined changes in decision-making mechanism for public investment projects, which leads to many ineffective investment projects. In addition, if Vietnamese companies want to compete on international markets, they must first of all compete and develop in the domestic market on their own, rather than relying on relations or give-and-take mechanisms for their existence.