Vietnam: Industrial growth boosts GDP
Published 6 October 2014
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This article is no longer current. Please refer to Overseas Business Risk - Vietnam
Summary
Vietnam’s GDP expanded 6.4% year-on-year in the third quarter of 2014, the fastest growth since 2012, while inflation fell further. Growth in the industrial and construction sectors accelerated, signalling the revival of domestic demand. These are positive signals for the business environment in the upcoming quarters.
Detail
Q3 Growth increased more than market expected
Vietnam seems to be on track to reach the government’s 5.8% growth target for 2014. GDP expanded 6.4% year-on-year in the third quarter, up from 5.4% in the previous quarter and higher than market expectations.
Domestic economic activity picked up. Growth in the industrial and construction sectors accelerated to 8.3% year-on-year in the third quarter, from 5.9% in the second quarter. Manufacturing growth jumped to 9.8%, the highest rate since the first quarter of 2012. Key domestic industrial activity indices increased in alignment with the output figures.
Inflation fell to 3.6% year-on-year in September, the lowest figure since November 2009, as the rate of credit growth moderated. The total value of loans has increased by 7.0% so far this year (from the end of 2013), short of the government’s 12-14% credit growth target for 2014.
Export growth remains strong, while import growth has started to pick up – a further indication of the strengthening domestic economy. Vietnam will likely continue to record a small (goods) trade surplus this year. The foreign invested sectors of the economy generate a significant trade surplus, more than offsetting the domestic sector’s trade deficit.
FDI inflows remain robust, totalling US$ 11.2 bn in commitments so far in 2014. Foreign investments into the electronics and mobile phone sectors have led to a structural change in Vietnam’s trade profile in the past 3 years with higher contribution from tech exports.
Comment
Although it is still too early to conclude with certainty that the economy is reviving, higher growth in the industrial sector, despite remaining constraints in accessing credit, is a positive indication for output growth in the near future.
Vietnam’s medium and long-term growth remains dependent on the government’s structural reform process. Financial sector reform is underway – out of the 9 weak banks identified in 2012, restructuring plans for 8 have either started or been approved – but there have been limited visible results. Reform of state-owned enterprises (SOEs) seems way behind schedule, with only 76 SOEs equitised or restructured so far, out of 432 SOEs targeted for 2014 – 2015. The pace of reform will need to pick up if Vietnam is truly to achieve its growth potential.
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