Vietnam - Overview

An Expert's View about Economic Trends/Outlook in Vietnam

Posted on: 30 Sep 2012

Latest Development
•Vietnam’s economic growth edged down to 4.4% year-on year (YoY) in the first half year of 2012 due to a slowdown in the production, business and consumption sectors, down from 5.6% in the year-earlier period. 
•In line with the fall in international commodity prices, inflation eased to 12.2% YoY in the first half year of 2012, down sharply from 21.2% in the year-earlier period.
• Vietnam’s exports surged by 34.2% to US$96.9 billion in 2011, while imports grew by 25.8% to US$106.7 billion, with the trade deficit narrowing to US$9.8 billion, the lowest in a decade.
•Hong Kong’s exports to Vietnam surged by 23.3% YoY to US$3.2 billion In the first six months of 2012, while imports increased by 103.1% YoY to US$2.0 billion during the same period.

Current Economic Situation

Vietnam’s economic growth edged down to 5.9% YoY in 2011 from 6.8% in 2010. The slowdown was due to the tighter monetary and fiscal policy in response to accelerated inflation. The agriculture, industry and services sectors registered respective growth rates of 4%, 5.5% and 7%.

In the first half year of 2012, Vietnam’s economy slowed to 4.4% YoY from 5.6% in the year-earlier period. Slower GDP growth was due to the decelerated activities in the production, business and consumption sectors. The World Bank forecasts that the Vietnamese economy to grow at 5.6% in 2012, echoing the view of the Ministry of Planning and Investment (MoPI) that Vietnam is unlikely to meet the GDP target of 6%-6.5%, with the growth rate now seen at 5.2%-5.7%.

Vietnam’s inflation grew by 18.7% in 2011, triggered by high international commodity prices and strong domestic credit growth. The decline in international commodity prices in the first half year of 2012 helped nudge down Vietnam’s inflation to 12.2% YoY compared with 21.2% in the year-earlier period. According to the IMF, Vietnam’s inflation will ease to 12.6% in 2012, yet still above the official target of less than 10%.

Following the disappointing GDP data and slower inflation in the first half year of 2012, Vietnam is seen as pursuing a more accommodative monetary policy to support economic growth. In July 2012, the State Bank of Vietnam (SBV) cut its benchmark interest rates by lowering the refinancing rate from 11% to 10 %, the fifth time in 2012 following a string of cuts in March, April, May and June.

External Trade

Vietnam’s exports surged by 34.2% to US$96.9 billion in 2011, while imports grew 25.8% to US$106.7 billion, with the trade deficit narrowing to US$9.8 billion, the lowest in a decade.

Among the export industries, textile and garments still had a relatively larger share to account for 14.5% of total merchandise exports in 2011. Crude oil came second with a 7.5% share. Telephones, mobile phones and parts ranked third with a 7.1% share (almost double from 2010). The top two export markets of Vietnam in 2011 were the US and Japan. In the first five months in 2012, garment and textile products exported reached US$5.5 billion, up 11% YoY.

In addition, the bulk of imports in 2011 consisted of machinery, equipment and parts (14% of the total), as well as petroleum products (9.3%). In addition, China remained the largest source of Vietnam’s imports in 2011, followed by Korea and Japan.

Tourism was gaining importance in 2011, in which Vietnam attracted over 6 million foreign tourists for the first time, representing a 19.1% growth over 2010. Therefore, tourism revenues reached 130 trillion dong (roughly US$6.5 billion) with a YoY growth of 30%. Vietnam expects to welcome 6.5 million foreign tourists in 2012 and targets to generate about US$10 billion in tourism revenue and attract about 7.5 million overseas visitors in 2015.

WTO Accession

Vietnam became a World Trade Organisation (WTO) member in January 2007. While facing fewer restrictions and lower tariffs in export markets, Vietnamese manufacturers also benefit from the improving access to imports of cheaper raw materials and semi-processed inputs as Vietnam's import tariffs drop.

Upon its WTO accession in January 2007, Vietnam was committed to bound tariff rates on most products ranging from zero to 35%, although tariffs on cars and motorbikes remain high, with certain sensitive products (such as eggs, tobacco, sugar and salt) subject to tariff quotas (higher duties for quantities exceeding the quotas).

Among other benefits, WTO accession allows Vietnam to take advantage of the phase-out of the Agreement on Textiles and Clothing, which eliminated quotas on textiles and clothing for WTO partners on 1 January 2005.

In January 2009, Vietnam allowed foreign investors to operate 100% foreign-owned retail business as per its WTO commitments. Previously, foreign companies had to form joint ventures with local companies if they wanted to enter the retail market.

CAFTA Membership

The China-ASEAN Free Trade Area (CAFTA), formally established in January 2010, is one of the world’s largest free trade area by population (1.9 billion), with a combined GDP of more than US$7.7 trillion and total trade value of US$4.8 trillion. Under CAFTA, Vietnam will eliminate 90% of its tariff lines for goods traded with China. The remaining 10%, including textiles, fall under the list of sensitive items and their import tariffs will be lowered more slowly.

The General Department of Vietnam Customs announced in July 2012 that China was the country’s biggest trading partner in the first five months of 2012, with bilateral trade reaching US$15.7 billion, up by 19% YoY.

Foreign Direct Investment (FDI)

According to Vietnam’s Ministry of Planning and Investment, Vietnam attracted 1,091 licensed FDI projects in 2011 with total registered investment capital of US$11.6 billion. Hong Kong became Vietnam’s largest FDI source in 2011, with a registered investment capital of US$3.1 billion, followed by Japan, Singapore and South Korea.

In the first half of 2012, Vietnam attracted 452 new FDI projects amounting to US$4.8 billion, plus 123 projects raising their registered capital by US$1.6 billion, totalling US$6.4 billion.

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Posted: 30 September 2012