New growth incentives for Vietnamese economy

The Vietnam’s Gross Domestic Product (GDP) rose by 7.31% in the third quarter of this year, contributing to raising the nine-month GDP to the highest level over the past nine years, signaling that Vietnam's economy can make a breakthrough.

The production of optical cable at the Post and Telecommunication Equipment Joint Stock Company (POSTEF). Photo: NGUYET BAC
The production of optical cable at the Post and Telecommunication Equipment Joint Stock Company (POSTEF). Photo: NGUYET BAC

A facilitating State

According to the data released by the General Statistics Office (GSO), Vietnam’s GDP was estimated to increase by 6.98% in the first nine months of 2019. The GDP expanded by 6.82% in the first quarter, 6.73% in the second quarter and 7.31% in the third quarter of 2019.

During the nine-month period, the agricultural, forestry and fishery sector grew by 2.02%, contributing 4.8% to the overall growth while the industry and construction sector soared up by 9.36%, contributing 52.6% to the overall growth as well as the service sector went up by 6.85%, contributing 42.6% to the overall growth.

GSO General Director Nguyen Bich Lam said that the manufacturing sector is the main driving force for the economic growth. In particular, the mining industry has grown positively after many years of negative growth, thanks to an increase in the output of ore and coal mining and the increasing price of coal provided for electricity production.

Another important driver for the economic growth is the service sector. Market services all posted high growth rate, offsetting the slow growth of the agricultural, forestry and fishery sector.

The nine-month economic picture also saw the growth of import-export activities and investment. Vietnam reported a trade surplus of US$5.9 billion in the January-September period.

The private economic sector also invested over VND624 trillion (US$26.83 billion) in the economy during the nine-month period, accounting for 45.3% of the total social investment capital, demonstrating the sound policy of the Party on facilitating the private sector to become an important driver of the national economy.

Lam said that the Vietnam’s business and investment environment has improved which was attributed to the efforts of a State of action. The number of newly established enterprises surpassed 100,000 to a record high of nearly 102,300 in the first quarter of 2019. In addition, 43.4% of surveyed enterprises in the manufacturing industry said that their business performance in the third quarter was better than that in the second quarter and 52.1% of enterprises expected that their business prospects will be better in the last quarter of this year. Meanwhile, the number of enterprises forecasting difficulties in their business reduced to 12.1% from 18.3% compared to the same period last year.

In addition, inflation was kept under control at a low level and the average consumer price index (CPI) rose by 2.5% in the past nine months, the lowest nine-month increase in the past three years. Director of the GSO's Price Statistics Department Do Thi Ngoc said that inflation in the entirety of 2019 is expected to be curbed under 3%.

Bottlenecks needed to be removed

Many international financial organisations also released positive assessments on the Vietnamese economic outlook in 2019 and 2020. HSBC forecast that Vietnam’s GDP will stand at 6.7% in 2019 and inflation will be kept under control below 2.7%.

In the ADB’s Asian Development Outlook 2019 Update published on September 25, ADB said that the Vietnamese economy is predicted to maintain a healthy growth in 2019 and 2020 at 6.8% and 6.7% respectively. Vietnam’s inflation is also forecasted to be reduced to 3.0% from 3.5% in 2019 and 3.5% from 3.8% in 2020.

ADB Country Director for Vietnam Eric Sidgwick said that despite the downturn in global trade, the Vietnamese economy remains healthy thanks to continued strength in domestic demand and sustained inflows of foreign direct investment (FDI). He added that prospects for domestic consumption continues to be positive, supported by an increase in people’s incomes, buoyant employment and moderate inflation.

Meanwhile, domestic economic experts said that the economic growth will surpass the set target of 6.8% in 2019. However, efforts should be exerted to remove bottlenecks to the economic growth. The disbursement of public investment capital remains slow and in the nine-month disbursement only reached VND247 trillion (US$10.62 billion), equivalent to 60% of the plan. Director of GSO’s Investment Department Nguyen Viet Phong said that 1% increase of public investment capital will help GDP to increase by 0.6%. Authorised agencies also need to address issues regarding land, administrative procedures and institutions to accelerate the disbursement of public investment.

The agricultural sector should adjust its production plans and crop structure in the context of declining growth rate of the sector due to climate change and epidemics.

The industrial production sector also needs to increase the proportion of processing and manufacturing industries while reducing the proportion of outwork and assembly for products manufactured in Vietnam in order to support domestic production and increase the localisation rate.