Encouraging Economic Signs

Economic growth significantly increased, to 5.83 percent in the first months of 2010, up from 3.1 percent in the same quarter last year. In terms of sector percentage points, industry - construction made the largest stride, jumping from 1.5 percent to 5.65 percent. The agriculture, forestry and fisheries sector expanded 3.45 percent, compared with 0.4 percent in the first quarter of 2009. The service sector had the lowest gain, climbing 6.64 percent, compared with 5.4 percent in the same period of last year.

 

One of Vietnam’s outstanding achievements was its attractiveness to foreign investors. By the end of March 2010, the Southeast Asian nation licensed 139 projects with a total registered capital of US$1.92 billion, equal to 59.1 percent of total projects and 59.5 percent of registered value in the same period of 2009. If increased capital of previous investors was included, the country drew more than US$2.1 billion of FDI capital, equal to 29 percent of the amount gained in the same period of last year.

The number of international visitors to Vietnam was estimated at 473,000 in March 2010, up 6.1 percent from February 2010, bringing the total quarterly volume to 1.35 million, up 36.2 percent year on year.

 

However, Vietnam also witnessed significant shortcomings and challenges in the quarter.

 

The trade deficit remained a burning issue with over US$3.5 billion deficit in the first quarter, equal to 25.1 percent of export revenues and exceeding the safety zone. If Vietnam fails to enact drastic and consistent measures this year, the trade gap may exceed the US$12.87 billion in 2009 and US$14.12 billion in 2008. The trade deficit may surpass the 20 percent export revenue mark for the third year in a row. A high trade deficit adversely impacts the balance of payments, foreign exchange reserves, exchange rate, and market shares of domestic companies. This will lead to “imported inflation”, sending the inflation rate even higher.

 

Consumer prices are expected to grow 7 percent or less this year while pundits are warning of high inflation. However, authorities are still very optimistic of reaching the goal despite high price rises during Tet, or traditional Lunar New Year of Vietnam. In fact, after three months, consumer prices increased 4.12 percent. This development presents policymakers a dilemma: if fiscal and monetary policies are tightened it will put a brake on the economy which is reviving to establish a new level of growth, while if fiscal and monetary policies are not tightened, especially exchange rates increase coupled with global price hikes, Vietnam will not reach the inflation target and consumer living conditions will be badly affected.