Advantages and warnings for the economy through the year-end

Despite the national economy showing positive growth in the first quarter of this year, the economic picture of the three remaining quarters contains the dark clouds of high inflation, a growing trade imbalance, and challenges in managing financial and monetary policies.

In the first quarter of this year, Vietnam’s GDP and consumer price index (CPI) rose by 5.83 percent and 4.12 percent, respectively, while industrial production reached VND173.5 trillion, a 13.6 percent increase over the same period last year.

However, the value of the industrial sector increased only 5.65 percent, 8 percent less than the growth of industrial production.

The Head of the National Accounting System, Bui Ba Cuong says Vietnamese businesses are feeling a pinch due to low production efficiency and high Input costs.

The trade deficit is also a challenge for the national economy this year.  Over the past three months, exports fell by 1.6 percent while imports rose by 37.6 percent, bringing the three-month trade deficit to an estimated US$3.5 billion.

The Ministry of Industry and Trade (MoIT) attributed the large imbalance to an abrupt increase in the price of production materials.

The MoIT is currently directing relevant agencies to strictly control commodities and create mechanisms to boost exports.

Asked how the 1.6 percent drop in exports would affect this year’s export growth target of 6 percent, Deputy Head of the MoIT’s Planning Department Nguyen Thanh Hoa said this year’s exports show positive signs compared to 2009 because if you exclude gold exports, total exports in the first quarter of this year actually surged by 19.3 percent. In addition, the recovery of industrial exports and growing involvement of FDI businesses like chip maker Intel in Vietnam’s export market bode well for the 6 percent export growth target set for this year.

The world economy’s failure to rebound quickly has resulted in limited purchasing power in developed countries, the major export markets. Consequently, Vietnamese products are facing tougher competition from Asian countries that export farm products, seafood, garments and textiles, and electronics.

To curb inflation, the MoIT is sparing no effort to balance supply and demand. It warns that possible power shortages in the dry season could slow the economic recovery. Meanwhile, many businesses are still finding it difficult to secure bank loans due to interest rates rising to 16-18 percent.

At a recent monthly cabinet meeting, Prime Minister Nguyen Tan Dung asked the State Bank of Vietnam to continue its flexible monetary policy to control credit growth, which now stands at a low 2.19 percent, so as to fuel the economy while curbing inflation.

The Ministry of Planning and Investment has asked sectors and businesses to pay more attention to increasing the value of industrial and export products and expanding the domestic market. Banks should re-evaluate outstanding debts and do what they can to make it possible for businesses to borrow capital.

Management measures should be focused on stabilizing the macro economy, accelerating the disbursement of funds for projects, boosting exports, reducing the trade deficit, and controlling inflation.