General Statistic Office statistics revealed gross domestic product (GDP) growth of 6.5 per cent for the first half of 2008, the second highest increase in the world after China. Meanwhile, the consumer price index in June increased by only 2.14 per cent, down from 3.91 per cent in May.

“The slowdown of the Vietnamese economy is a welcome sign, as it indicates that the recent policy actions have impacted on economic activity,” said Sherman Chan, an economist at Moody’s Economy.com.
Chan said although the aggressive monetary tightening by Vietnam’s State Bank might have a direct downside impact on economic activity, it could also be viewed as a positive sign that the authorities were actively tackling economic problems.

The trade deficit narrowed to $1.3 billion in June, down from $2.85 billion in May. “We believe the slowdown in imports growth reflected the impact of the credit controls and the cutting of investment projects that the Vietnamese government has undertaken in the past months,” Goldman Sachs said in a recent statement.
However, how to maintain the economy’s momentum in next six months will be a big challenge.

To reach the revised target this year, GDP in this year’s last half must increase by 7.5 per cent, the industrial and construction sector 9 per cent and the service sector 8.6 per cent. In the first half, industrial and construction sector growth increased by 7 per cent and service sector by 7.6 per cent.

Nguyen Duc Hoa, Vice Minister of Planning and Investment, admitted the second half of the year would be a tougher period as the global economy would still be in recession and global fuel prices were increasing sharply. Last week, global oil prices breached the $145-per-barrel level. The prices of raw materials such as billets and clinker also skyrocketing. In addition, enterprises are also facing high lending interest rates at 21 per cent per year.

“In our view, the set of macro data in June carried encouraging signs of easing inflationary pressures and decelerating imports growth, but it is still too early to dismiss the warning on macro instability risks,” said the statement of Goldman Sachs.

According to the statement, the Vietnamese government would have to watch for any further accumulation of inflationary pressures, especially on food, vigilantly and use monetary and fiscal measures to ensure the economy’s soft landing and control inflation. Furthermore, the statement said the total trade imbalance of $14.8 billion in the first half of 2008, compared to $5.2 billion in the same period of last year, still highlighted the risks to Vietnam’s external account stability.

Late last month, the Ministry of Planning and Investment submitted a series of measures aimed at maintaining the development of the economy and reining the increase of inflation rate. These measures will focus on further market management operations, tightening monetary policies but still creating favourable conditions for productions of enterprises, especially exporting enterprises. “The ahead period is really difficult. There are a lot of unpredictable factors waiting us in the future like fuel price, global inflation rate, natural disasters and diseases,” Hoa said.

Source: VIR