Concerns over low economic growth

Concerns over low economic growth

Since early this year, Vietnam has made significant achievements in curbing inflation and stabilising the macroeconomy.

Although the consumer price index (CPI) in August inched up 0.63 percent after two consecutive months of decline, it remains relatively low compared to the same period recorded over the last eight years.

Therefore, it appears likely that the CPI will sit at around 7-8 percent, conistent with the set target. To have inflation contained at a single-digit figure will be one of the most significant economic achievements for 2012.

However, there are several reasons why inflation is likely to raise its ugly head again. The recent low CPI increase is attributed to the falling price of food, which is determined by various factors such as the occurrence of natural disasters, the spread of epidemics and global prices.

Many sectors and businesses have considered the low inflation rate as a chance to increase the prices of their goods and services. In addition, as inflation tends to surge at the end of the year when demands for investment and consumption increase, credit growth is likely to be higher in the last four months of the year.

In order to avoid such a cycle, it is necessary to be careful about loosening monetary and fiscal policies because if interest rates continue to be slashed, commercial banks with poorer capacity will try to get around the rules, leading to a return of the race in mobilisation rates among commercial banks.

In addition, economic restructuring and the shift towards a new economic model should be accelerated to improve investment efficiency and productivity.

Stabilising the macroeconomy

Macroeconomic stabilisation is largely considered in terms of trade deficits and over-expenditure in the State Budget.

After two consecutive months enjoying import surpluses (US$361 million in June and US$559 million in July) Vietnam experienced a US$150 million trade deficit in August, but it was far lower compared to the same period last year. The result is due to the high export earnings in the first eight months of the year, which hit an average of US$9,169 million per month, and the slowdown of import growth to just 6.7 percent.

It is expected that Vietnam’s trade deficit will reach just US$4 billion, the lowest figure recorded since 2003.

Balancing the State Budget will be no easy task in 2012. In the first eight months of 2012, budget revenue was much lower than forecast, while budget expenditure was higher than the same period last year. If no timely measures are taken, budget over-expenditure in 2012 will exceed the 4.8 percent of GDP set target.

Economic growth

International organisations, economists, and policy-making agencies forecast a 5.32-5.7 percent growth rate for Vietnam in 2012. If economic growth reaches the lower end of this scale, it will be the lowest rate since 2000.

Despite the low estimated growth rate, it is considered to be reasonable in the context of the global economic crisis, which is causing more serious impacts on the country than was seen in 2009, when local business enjoyed high credit growth, low bank rates and substantial government support though a stimulus package.

Since early 2011, businesses have been confronted with various difficulties including the exhaustion of resources, high inflation and interest rates, low credit growth, and high inventory levels.

In addition, most economies worldwide are predicted to see low economic growth in 2012.

In these early stages of economic restructuring, it is crucial to persist with the containment of inflation and stabilisation of the macroeconomy while loosening fiscal and monetary policies.

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