Recovering production fuelling economic growth

According to the fresh statistics just released by the General Statistics Office (GSO), in August, Vietnam’s industrial production “continues its rapid recovery trend”, with the index for industrial production (IIP) expanding 2.9% as compared to the previous month and 15.6% against the same period last year on the back of “businesses vehemently increasing production to make up for delayed production over the last two years of being affected by the COVID-19 pandemic.”

In the first eight months of 2022, the IIP is estimated to expand 9.4% on-year, in which the manufacturing and processing sector which is responsible for more than 80% of the economy’s industrial growth climbed 16.2% as compared to the corresponding period last year. This 8-month IIP is higher than the 2.2 and 5.5% on-year improvement in the same period of 2020 and 2021, respectively, and almost equal to that of the 8-month IIP expansion of 9.5% in 2019 when COVID-19 had yet to appear.

According to the Ministry of Industry and Trade’s new projection, if the IIP goes up by 9.8% in Q3 and 10.3% in Q4, it will be as much as 9.5% for the entire year.

On the increase

Breaking down the situation, growing production has led to growing demand for electricity and fuel – the vital inputs for the economy.

According to the Ministry of Planning and Investment, the Vietnamese economy’s production and distribution of electricity recorded an on-year climb of 14.8% in August and 6.8% in the first eight months. In the first eight months of last year, the rate reduced 6.6% on-year.

State-run Vietnam Oil and Gas Group (PetroVietnam) reported that its total revenue in the first eight months of this year is estimated to sit at around 21.96 billion USD, up 53% on-year.

PetroVietnam exploited 7.28 million tonnes of crude oil, representing an on-year reduction of 1%; churned out 1.21 million tonnes of nitrate - up 9%, and almost 4.54 million tonnes of assorted petrol and oil products– up 6%.

When it comes to on-year sales, the Hanoi-headquartered group’s assorted petrol and oil products rose 11%, condensate 122%, and fertiliser 26%.

As for the 8-month inventory, PetroVietnam witnessed an on-year decrease of 38% for assorted petrol and oil products, 3% for fertiliser, and 59% for polypropylene.

Notably, the group’s 8-month export value is estimated to stand at over 1.96 billion USD, up 57% on-year.

In another case, state-owned Electricity of Vietnam (EVN) reported that all of its business and production activities have been increasing strongly in the first eight months of 2022.

Specifically, its gross output of industry is calculated to be about 11.38 billion USD, up 5.97%, while the produced and purchased electricity volume is estimated to reach176.556 million kWh, an on-year expansion of 5.93%, with commercial electricity is calculated to be 160.52 million kWh, up 5.97% on-year. In which, electricity for agro-forestry-fishery increased 2.3%, while the rate is 6% for construction and industrial activities, 3.5% for households, and 21.1% for hotels and trade.

EVN’s total 8-month revenue from electricity sale is estimated to hit about 13.14 billion USD, representing an on-year advancement of 7.57%.

According to the GSO, in the first eight months of this year, businesses’ confidence kept strongly growing since last October when the government applied a flexible policy in reining in the COVID-19 pandemic, making it quite easier for enterprises to perform.

In an example, having operated in Hanoi for more than a decade, Japanese-invested Apha Industry Vietnam churning out spare parts for vehicles halted the importation of materials from some foreign markets for a few months due to partners shrinking production caused by COVID-19. However, since late last year when the government applied a new flexible policy on fighting the pandemic, the imports have been resumed, allowing the company to increase production for exports.

A company representative said that in the first eight months of this year, the firm’s gross output of industry expanded 10% over that of a 5% rise in the same period of last year, while the import turnover expanded nearly 9%% since late last year. The company is expecting a double digit in revenue this year.

According to the GSO, in the first eight months of this year, Vietnam’s total export-import turnover is estimated to be 497.64 billion USD – up 15.5% on-year, including 250.8 billion USD for exports – up 17.3% and 246.84 billion USD – up 13.6%. All of these create a trade surplus of 3.96 billion USD.

The GSO also reported that in the first eight months of 2022, the economy witnessed around 101,300 newly-established firms with total registered capital of 49.4 billion USD, newly employing as many as 696,200 new labourers – up 24.2% in the number of businesses, 0.3% in capital, and 16.2% in the number of employees as compared to those in the corresponding period of last year.

If an additional 108.78 billion USD registered by 35,100 operational businesses is taken into account, the total registered capital inserted into the Vietnamese economy in the period is 158.2 billion USD, an on-year climb of 36.1%.

What is more, in the first eight months, there have been about 48,100 enterprises resuming operations, up 48.3% on-year, increasing the total number of newly-founded businesses and those resuming operations to nearly 149,500 – up 31.1% as compared to the same period of 2021.

The GSO underscored foreign direct investment (FDI) as one of the key drivers of economic growth.

In the January-August 20 period, total newly-registered FDI reached 6.35 billion USD, down 43.9% on-year. Nevertheless, the total newly-added FDI of 676 in-run projects hit 7.51 billion USD, up 50.7% on-year; and the FDI from stake acquisitions and capital contributions stood at 2.92 billion USD – an on-year expansion of 2.6%.

“Meanwhile, FDI disbursement reached 12.8 billion USD, an on-year rise of 10.5%. This is the highest 8-month realised FDI figure over the past five years,” the GSO said in a report on Vietnam 8-month socio-economic situation released on August 29, 2022.

New projections

Spain-based global analysts FocusEconomics last week said in a statement that following Q2’s surprisingly strong performance, the economy should be accelerating further and reaching a double-digit growth rate in Q3.

“Looking ahead, industrial activity is projected to grow faster in 2022 than it did last year, as pandemic restrictions are gradually removed,” FocusEconomics said. “FocusEconomics Consensus Forecast panellists estimate that industrial output will grow 14.9% in 2022 and 7.4% in 2023.”

FocusEconomics continued saying that growth in the export-oriented industrial sector reached a 15-month high in July. Moreover, looser COVID-19 restrictions since March should be supporting services, while tourism has continued its trail-blazing rebound - arrivals shot up 4,681% on-year in July. In addition, households and businesses should be benefiting from July’s tax cuts on gasoline as well as August’s import tax cuts on gasoline products.

“In August, the government revealed plans to build a 58.71 billion USD high-speed railway across the country. If approved, the project will boost government spending in the near term, while the completed railway will support long-term growth prospects - the construction of its first two sections is currently scheduled for 2032,” FocusEconomics stated.

This 58.71 billion USD will include 1.98 billion USD for site clearance, 31.58 billion USD for construction, 15 billion USD for purchasing and installing equipment, 5.82 billion USD for project management and consultancy, and 4.04 billion USD for provisions.

“The economy will grow at the swiftest pace in ASEAN this year (see chart), nearly three times faster than in 2021. Pent-up private spending and investment will drive the expansion, supported by stronger exports and accommodative government policies,” it said.

“Nevertheless, elevated fuel prices, new surges in COVID-19 cases and slowing external demand pose risks. Our panellists expect GDP to expand 7.3% in 2022, and 6.6% in 2023.”

In its latest Global Research report on Vietnam, Standard Chartered Bank anticipates Vietnam’s economy will see a continued recovery, as the economic revival has shown signs of broadening. The bank maintains its GDP growth forecast of 10.8% on-year in the third quarter and 3.9% in the fourth quarter, taking 2022 growth to 6.7%.

“The recovery may accelerate markedly in the second half of the year as tourism reopens after a two-year closure. That said, rising global oil prices may have negative consequences on the economy,” said Tim Leelahaphan, economist for Thailand and Vietnam at Standard Chartered Bank.

Economic growth forecasted for 2022 and 2023 in ASEAN (%) (Source: FocusEconomics)