Economic Sector

Last updated: Wednesday, January 23, 2019


Growth Quality Needs to Be Reconsidered

Posted: Friday, July 14, 2017

The latest report on the second quarter of 2017 by the Vietnam Institute for Economic and Policy Research (VEPR) said that Vietnam’s economy in the second quarter showed signs of a positive recovery with an economic growth of 6.17 per cent, higher than the rate of 5.78 per cent in the same period of 2016. However, VEPR economists said the prospect of realising the economic growth target of 6.7 per cent in 2017 is vague. Thus, VEPR forecast a GDP growth of just 6.37 per cent in the year.

Bright spots in agriculture
According to Dr Nguyen Duc Thanh, Director of VEPR, agriculture is a bright spot in Vietnam’s economic growth in the first six months of 2017. As a result, service and agricultural growth were considered to be key drivers of economic recovery in the second quarter when it attained 2.01 per cent of growth in the first half of 2017. Growth in agriculture, forestry and fisheries in the first six months reached 2.65 per cent, higher than the growth of 2.22 per cent in 2015. The strong seafood growth was resulted from good weather and price.

In particular, corporate start-ups in the first six months of 2017 was 1.5 times and corporate start-up value was nearly 3 times higher than the same period of 2016. In the first half of 2017, the country had 61,276 new companies with a total registered capital of VND596.2 trillion, up 12.4 per cent in new companies and 39.4 per cent in capital value over the same period of 2016, according to the General Statistics Office (GSO) under the Ministry of Planning and Investment. This showed the huge appeal of Vietnam's economy and it needs the confidence of the business community in business prospects.

In addition, Vietnam saw respective export and import growth rates of 24.5 per cent and 26.8 per cent in the second quarter highest in half a decade. Quickened export significantly helped improve trade balance significantly. Notably, for the time, Vietnam’s trade deficit with South Korea (US$15.9 billion) surpassed its deficit with China (US$14.1 billion).

Oil production discouraged
“Although the economy has achieved a positive growth, it will be very hard to reach the GDP growth target of 6.7 per cent in the whole year,” he said.
Currently, the government is gradually returning to use planning methods, requiring every unit, sector and even every big business to have certain growth to contribute to the achievement of the 6.7 per cent growth target. The Government issued Directive 24/CT-TTg dated June 2, 2017, requesting the oil and gas industry to increase output to increase its contribution to the GDP. This went against economic nature. This also meant that the economy will have to trade off a lot to achieve this growth target.

In addition, Thanh said that the current economy is heavily dependent on FDI. This means that our growth results do not actually come from our internal economic strengths.

Dr Vu Dinh Anh thought that Vietnam is choosing a wrong way of growth as it placed excessive expectations on growth by increasing supply (increasing mining, production, export, etc.) Meanwhile, we need to boost demand to achieve growth this year. In the second quarter, the economic growth was driven by investment, export and mining while internal factors tended to decrease, evidenced by the reduction of labour and employment. “Therefore, it is time for Vietnam to choose the answer for economic growth: Whether the growth actually reflects the real economic health?” he said.

Dr Vo Tri Thanh, former Vice Chairman of the Central Institute for Economic Management (CIEM), said that Vietnam's growth has been close to potential level. Hence, stimulating growth by adding investment or using administrative demands, e.g. increasing oil and gas output is unsustainable. Instead, Vietnam should find solutions to stimulate demands and breakthroughs in reforming the business environment and the state-owned sector, and facilitate the private sector to develop. The increase of State budget revenue from the increase in land-use levies and non-tariff revenues indicate that the business community is still experiencing a lot of difficulties.

Anh Phuong

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