Vietnam's notable economic developments in first half of 2015

Industrial production recorded the highest growth rate in three years. The consumer confidence index compiled by ANZ-Roy Morgan in the first quarter of 2015 reach 142.3 points, higher than the average of 133.3 in 2014. Social security, traffic safety and the environment gradually improved.

In the first four months of 2015, the index of industrial production posted a strong rise, at 9.4% compared with 5.5% in the same period of 2014. The inventory index of the manufacturing sector rose 11.3% compared with the 13.9% rise as of April 1, 2014. Total retail sales and consumer services, excluding seasonal factors, rose by 8%. Passenger and freight transport volume increased steadily.

Merchandise exports were estimated at US$50.1 billion, up 8.2% with electronic products and computers up 62.9%, phones up 13.9% and footwear up 19.1%.

Agricultural production saw improvements in both cultivation and output, but falling prices and limited market access were creating pressure on many types of produce, especially rice, rubber and watermelon.

Agricultural exports saw drops in both volume and value with the exception of cashew and cassava, up 25.1% and 44.6% respectively. Rice fell 0.5% in volume and 5% in value; coffee down 40.6% in volume and 38.2% in value; seafood down 15% in value.

Commodity imports reached US$53.1 billion, up 19.9% with completely built units up 188.8% and machinery up 44.4%.

The trade deficit rose to about US$3 billion, equivalent to 6% of exports, compared with a surplus of US$2 billion in the same period last year, largely due to falling oil prices and sharp declines in agricultural exports.

International arrivals to Vietnam fell 12.12%. The number of newly established enterprises rose 9.7% with registered capital up 13.3% year on year. The number of enterprises resuming their operation also rose by 7.7%, a positive sign of improvement in the business environment and opportunities despite a 4.5% increase in the number of enterprise forced to suspend their operation.Foreign direct investment pledges dropped 23.3% but disbursement was up 5%, with three quarters poured into the manufacturing sector.

The amount of disbursed capital from the State budget rose 6.2% and was equivalent to 26.2% of the yearly plan.

Budget revenues reached 34.5% of the whole-year estimate, up 9.4%, while spending rose 9.5%, equivalent to 31.6% of estimate. Budget deficit was equivalent to 21.5% of whole-year estimate.The government's ratio of direct debt payment to budget spending was 16.1%, compared with 13.8% in 2014 and 15.2% in 2013. At the end of 2014, the ratio of public debt to GDP was more than 60%.

In the long term, Vietnam will quickly restructure its debt by increasing the proportion of long-term debt to ease pressure on short-term loans, tighten conditions for granting guarantees, and step up checks on the use of loans.

The consumer price index in April rose 0.14% against the previous month, 0.04% against December 2014 and 0.99% over the 12-month period. The average CPI in the first four months of 2014 rose 0.8% compared with the same period of 2014.

Credit growth improved with outstanding loans to priority sectors and geographical regions rising at a faster pace than the national average. At the end of the first quarter, total loans to the Central Highlands increased by 4.78% compared with the end of 2014, higher than the 2.65% average and accounting for 3.74% of the country's total.

The Vietnamese dong was devalued by 2% but the value of the local currency remained high, especially when compared with the 15-40% rise of the US dollar against many currencies in the world. Vietnam had a balance of payments surplus of US$2.8 billion, indicating that the majority of imported machinery is funded by foreign investment capital.

The restructuring of domestic commercial banks was being actively implemented in three ways: purchase by the State Bank, compulsory merger with State-owned commercial banks and voluntary merger with the participation of foreign partners.

The property market saw positive signs thanks to credit support for home buyers, and looser requirements on property trading and home ownership.

According to the Ministry of Construction, as of April 20 the total value of unsold properties in Hanoi was estimated at VND8.9 trillion (US$409.4 million), down 48.01% year on year. In Ho Chi Minh City, the figure was VND13.5 trillion (US$621 million), down 52.93%. In these two markets, although the land price has increased two-fold compared with 2014, the number of successful transactions also increased by three times with a strong rise in mergers and acquisitions and foreign investment from Asia, Europe and the United States in large property projects.

In the coming time, there will be a strong rise in the supply of offices and apartments for rent as well as villas and adjacent houses. Outstanding loans of commercial banks to the property market reached nearly VND330 trillion (US$15.2 billion), a marked rise compared with the lowest level of VND180 trillion (US$8.28 billion).

In the early months of the year, social security was improved with a positive sign in the number of jobs thanks to newly established enterprises. The number of workers in industrial enterprises as of April 1 increased 5.5% year on year.

Overall, the outlook for the Vietnamese economy is positive, but a more comprehensive effort is needed. According to the Asia Development Bank, Vietnam's economy is expected to grow by 6.1% in 2015 and 6.2% in 2016, compared with ASEAN's average growth rates of 4.9% and 5.3% in 2015 and 2016 respectively. Inflation is expected at 2.5% in 2015 and 4% in 2016. However, the current account surplus will narrow from 3.1% of GDP in 2015 to 1.5% of GDP in 2016. Meanwhile according to an ANZ report released on April 17, Vietnam's GDP growth in 2015 and 2016 will reach 6.5%, or even higher given positive results in the first months of the year.

Overall, economic growth is still below potential. Inflation is running low but could be higher due to pressure from rising prices of electricity, coal, global oil environmental tax and global oil. Public debt and bad debt are rising. Exports of rice, coffee and seafood are struggling.

In order to achieve the GDP growth of 6.2%, export growth of 10% and a trade deficit of less than 5% of total exports, competent authorities need to maintain a cautious monetary policy; adjust lending rates in line with deposit rates; control bad debt; prioritise capital to important projects; accelerate State-owned enterprise equitisation; create favourable conditions to encourage private enterprises; and expand and diversify export markets.

(Source: Nhandan Online)