Challenges to economic growth target

Friday, 2017-04-21 16:30:50
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Manufacturing motorbike parts at COSMOS Industrial Co., Ltd, Khai Quang Industrial Zone, Vinh Yen City, Vinh Phuc Province. (Credit: NDO/Thanh Sieu)
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NDO – Vietnam’s economy in Q1 recorded the lowest growth rate over the same period during the past two years, reaching only 5.1%. With this increase, according to economic experts, to reach the set target of 6.7% of GDP growth for the whole year, in the second quarter, GDP growth must be at 6.27% (up 1% compared to the first quarter). This high rate of increase requires determination from the Government to direct the implementation of solutions to remove difficulties, promote production and business operation and improve an investment environment.

Difficulties intertwined

The National Centre for Socio-economic Information and Forecast (NCIF) under the Ministry of Planning and Investment, recently released a report on economic growth forecasts for the second quarter of 2017. Accordingly, the NCIF research team pointed out some factors affecting GDP growth in the first quarter and said that these effects might continue in the second quarter.

Dr. Dang Duc Anh, head of the NCIF Analysis and Forecast Department said that overall, negative factors seem to overwhelm positive factors. Some basic growth indicators show a bleaker economic picture over the same period in 2016. Specifically, GDP growth was lower, with an increase of 5.1%, the lowest compared to the same period dating back two years. The trade deficit remained high at around US$1.9 billion, equivalent to 4.3% of total export turnover, while disbursement of public investment was slow and average inflation rose higher than the set target.

In other words, the macroeconomy is stable but the growth rate is low, Dr. Anh said, adding that the economic restructuring model witnessed a slow pace of change and the economy still depends heavily on mining. In addition, industrial structure continues its dependence on the FDI sector. Private enterprises remain small-scale, while restructuring of State-owned enterprises is slow. The economy is still mostly outsourced, with slow development of support industry.

Besides, the domestic context still implies some negative factors, such as in the agro, forestry and fishery sector, which although recovered, still contains challenges. Mining industry activity continues to decline. Budget and government bond disbursement are low. Inflationary pressures are increasing due to pressure from world prices, as well as pressure on exchange rates and interest rates due to international financial fluctuations.

Also related to the impact of the world economy to Vietnam, Dr. Luong Van Khoi, NCIF Deputy Director said that the global political economic factors, as new European context after the UK triggering Article 50 under the Lisbon Treaty, which officially initiates negotiations on the UK exit from the European Union (Brexit); the new policies of US President Donald Trump; and the impact of the Fed's interest rate increase policy, all have a definite impact on Vietnam.

For example, with the Fed raising interest rates, assessing the impact of this policy on Vietnam's economic growth, according to Dr. Khoi, if the Fed increases interest rates following a roadmap, Vietnam's economic growth could be reduced by 0.06 percentage points in 2017 and 0.05 percentage points in 2018.

Brexit may not have a significant direct impact but indirectly affects financial markets, commodity prices, development cooperation, tourism, etc., while the US border tariff possibility is unlikely but if it comes into force, it would also have a great impact on the Vietnamese economy, Dr. Khoi forecast.

It can be seen that the difficulties maintained from the first quarter and latent issues, as well as impact from the world economic context, will put unceasing pressure on efforts to promote economic growth in the near future.

Timely response

However, besides the dark patches in this relatively low overall growth picture, business and credit growth are also seen as bright spots. According to NCIF, by the end of the first quarter, there were over 26,400 newly established enterprises and more than 9,200 businesses came back into operation after a pause.

The world economy continues its recovery trend, positively impacting the stable recovery of Vietnamese economy. Along with that, the domestic context has some positive factors, as business confidence is more stable, with 51.2% of enterprises having more orders in the second quarter than the first one, but order growth rate is not high (the same period of 2016 was up 50%). Investments in the private and FDI sectors have improved.

To meet GDP growth targets for 2017, the NCIF team also made some policy suggestions. Accordingly, the Government should continue to maintain macro stability to create trust for investors and the business community, while speeding up disbursement of investment from the State budget and Government bonds.

It is noteworthy that the Government should monitor implementation progress of tasks related to improving the business environment, enhancing national competitiveness and economic restructuring for 2017-2020, Dr. Anh emphasised. Dr. Khoi also recommended that it is necessary to closely follow world economic changes to respond in a timely manner to the new context in Europe, the new US policy and the possibility of the Trans Pacific Partnership Agreement no longer becoming available, as well as responding to risks from the Chinese economy.

Dr. Can Van Luc, Senior Executive Vice President of the Bank for Investment and Development of Vietnam, proposed solutions to remove difficulties and create motivation for economic growth. According to him, the Government should step up measures to improve the business environment, especially ones related to institutional matters and the disbursement of public investment. The next step is to accelerate restructuring, especially restructuring of State-owned enterprises and restructuring banking system issues associated with bad debt.

Another proposal is related to policy coordination, he said, adding that this year if the combination of monetary, fiscal and price policy is not good, inflation will flare up. In addition, private enterprises and services are two "doors" that can open momentum for economic growth , Dr. Luc affirmed.

NCIF offers two scenarios for economic growth in the second quarter of 2017. The first scenario, based on the forecast that the manufacturing industry will continue to grow faster than the first quarter, the declining trend in mining industry is lower than the first quarter, exchange rate is relatively stable, credit continues its high growth momentum, and the pace of disbursement of State investment is higher than that of the first quarter, sets the GDP growth in the second quarter at 5.6%.

Meanwhile, the second scenario, planned with a forecast that the mining industry is recovering with a mining level equivalent to that of 2016, the speed of State investment disbursement has grown strongly, and manufacturing growth is higher than the same period last year, forecasts GDP growth rate in the second quarter would reach 6.27%.

By Hong Anh