|
Economic growth weakens to 6.5 percent
Vietnam’s economy is growing at the slowest pace in at least seven years, as slumping stock and property markets have pushed construction companies to halt projects amid the fastest inflation in a decade and a half.
The country expanded 6.5 percent in the first six months of 2008 from a year earlier, down from 7.9 percent in the same period in 2007, according to the General Statistics Office (GSO).
The figure is the weakest since 2001, when quarterly breakdowns of year-on-year growth became available.
Ho Chi Minh City’s stock exchange index has tumbled 56 percent this year, while Morgan Stanley said in May that accelerating inflation in Vietnam has caused builders to curtail property projects they no longer view as economically viable.
Vietnam’s government has cut its 2008 growth target to 7 percent from as much as 9 percent.
“Growth has been affected by the bursting of two bubbles: the stock market and the property market,’’ said Raymond Mallon, an economist based in Hanoi since 1991.
“Once stocks fell, the property market also went down and that caused problems with some of the banks making loans for the property market, so you now see some construction companies having problems.’’
Though industry and construction grew 7 percent and accounted for 39 percent of Vietnam’s economy in the first half, the component including construction alone only expanded 0.9 percent.
“The lack of credit is hurting the construction market,’’ said Alan Young, chief operating officer of Vietnam Industrial Investments Ltd., an Australian-listed company which controls steel units including Vinausteel Ltd. and SSE Steel Ltd.
Vietnam’s government is targeting a reduction in credit growth this year to 30 percent from 54 percent in 2007, to fight an inflation rate that reached 26.8 percent in June.
“Bank credit growth has come to a standstill, as many state-owned commercial banks have hit their 30 percent annual lending target,’’ HSBC Holdings Plc. said in a June 27 report.
Residential property prices in Ho Chi Minh City declined as much as 25 percent between December 2007 and May of this year, according to Morgan Stanley.
Services, which like industry and construction also account for 39 percent of gross domestic product, grew 7.6 percent, the fastest of the three categories into which the GSO divides Vietnam’s economy.
“Major foreign companies still want to get into the Vietnamese market, including the financial-services industry,’’ said Raymond Burghardt, director of seminars at the East-West Center in Honolulu and a former US ambassador to Vietnam.
GDP, inflation and the trade gap
In its report titled “Vietnam Economics: Reining In the Tiger Cub” issued on June 20, Morgan Stanley said: “We expect GDP growth to slow sharply, to 5.5-6 percent by 2009 from 7.5 percent in 2008 and 8.5 percent in 2007.
Full-year GDP growth will probably be 6.5 percent, below the government’s revised target of 7 percent.”
Government efforts such as the tightening of monetary and fiscal policy have helped to curb inflation, which is mainly driven by surging global fuel, food and construction material costs as well as high capital inflows fueled by booming foreign investment and strong local credit growth.
Earlier this week, the country reported the lowest month-on-month inflation hike since the beginning of this year, standing at 2.14 percent in June.
The inflation rate increased 20.34 percent in the first half of 2008 over the same period last year.
Food prices are up 59.44 percent while housing and construction materials are up 14.34 percent.
Aside from the slowing of inflation growth, the government has also worked to slow the growth of the trade gap by promoting exports.
The country shipped goods worth $29.7 billion in the first half of this year, a 31.8 percent surge over the same period last year.
With preferential policies and population of over 85 million – 60 percent of whom are under 30 years old and eager to enjoy modern consumer goods and services – Vietnam continues to attract foreign investors.
The country lured $21.3 billion of foreign direct investment (FDI) in 2007 and $31.6 billion in FDI over the first six months of this year, 3.7 times more than the same period last year.
The six-month FDI figures have been bolstered by a $7.9 billion Taiwanese-backed iron project and the $6.2-billion Nghi Son refinery project.
But the trade deficit, gloomy stock and real estate markets and inflation still loom large on the horizon.
The country’s trade deficit was $14.8 billion in the first six months of 2008, 184.6 percent over the same period in 2007.
However, Morgan Stanley expects the trade deficit to slow to $4.5 billion during the fourth quarter of this year from $7.05 billion in the first quarter.
“We believe that this gap will be adequately matched by remittances, FDI, and official development assistance from multilateral agencies,” the research firm said in the report.
The sharp fall in the stock market, big drop in property prices, weaker GDP growth, and rising cost of borrowing should lead to a significant increase in banks’ non-performing loans, Morgan Stanley said, adding that the Vietnamese government is taking measures to stabilize the macro-economy and slow activities at state-owned businesses.
Vietnam, recording a GDP growth of 8.48 percent in 2007, has recently cut its 2008 economic growth target to 7 percent from initial 8.5- 9 percent.
The government is aiming for 7-7.5 percent GDP growth in 2009.
The construction and industry sector, 39 percent of the economy, has slowed as stock and property nosedives halt projects.
Thanhnien
|
