Economic outlook projected to continue to be bright

Friday, 2019-03-22 11:48:19
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Strong production is keeping economic growth on the right track
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NDO - The confidence of the domestic business community in Vietnam has been on the rise since early this year, with its industrial production continuing an uptrend, functioning as a great propellant for further economic growth, Thu Ha reports.

Over the past few weeks, Paul Kim, senior executive vice president of the Republic of Korea (RoK)’s Paris Baguette & SPC Group, has been busy making preparations to launch more stores in Vietnam to produce and sell sandwiches and beverages.

Paris Baguette is a European-style global bakery brand with over 3,800 stores across the six nations of France, the US, China, Singapore, Vietnam, and RoK.

“At present, we have a small factory near Hanoi, and 15 stores throughout Vietnam. We will expand the factory’s capacity and the number of stores to more than 20 in 2019,” Kim told Nhan Dan Online. “We see the economy is developing strongly.”

“The reason why we want to expand our presence in Vietnam is that the country’s consumption is growing strongly, especially regarding food and beverage, whose value may amount to billions of US dollars a year,” Kim added.

The group’s products were distributed at the recent second historic summit in Hanoi between the Democratic People’s Republic of Korea and the US. They were also distributed at the first summit in Singapore in June 2018.

Recently, US-invested Cargill Vietnam opened a new US$28 million feed mill in the southern province of Binh Duong to better serve livestock farmers in southern Vietnam.

The mill is Cargill’s 12th animal nutrition facility in the country, and also its largest and most technologically advanced. The 48,000 square-metre mill churns out assorted types of poultry and swine feed and has an annual capacity of 240,000 tonnes.

“Vietnam is a key animal nutrition market for Cargill and we are committed to long-term and sustainable investment in the country,” Philippa Purser, group director of Cargill Feed and Nutrition, told Nhan Dan Online.

According to the General Statistics Office (GSO), the strong performance of many enterprises and the growing confidence of investors like Paris Baguette and Cargill has reflected the economy’s sturdy performance.

The GSO reported that Vietnam’s total revenue from retails and consumption services hit VND793.8 trillion (US$34.51 billion) in the first two months of this year, up 12.2% year-on-year. Of which, the revenue of foodstuff consumption has increased 14.4% year-on-year.

“The economy’s consumption and production are on an uptrend,” said Minister and Chairman of the Government Office Mai Tien Dung. “This has attracted the eyes of enterprises, including many foreign ones.”

According to the GSO, in the first two months of this year, the economy’s index for industrial production also ascended 9.2% year-on-year, a relatively high level despite the slow-down in domestic production due to the traditional Tet lunar holiday.

Many key sectors in the economy also witnessed a high year-on-year rise, including the manufacturing and processing industry (11.5%) which creates nearly 80% of Vietnam’s industrial growth, electricity production and distribution (9.5%), and water supply and waste treatment (7.9%).

In addition, in the first two months of this year, nearly 16,000 enterprises were newly established, with total registered capital of $10.76 billion – up 25.4%. If the total newly-added capital of operating enterprises is taken into account, the total new registered capital in the economy is US$33.85 billion, up 88% year-on-year.

“These figures mean a soar in the business community’s confidence,” Dung said.

International optimism

FocusEconomics, which provides in-depth economic analysis globally, also sees Vietnam continue enjoying a bright outlook.

“Economic momentum appears to be holding up in the first quarter of the year as the resilient manufacturing sector defies external headwinds from weakening global growth and the slowdown in China,” said the firm’s fresh report on Vietnam’s economic outlook. “Industrial production picked up in February with stronger manufacturing output, although growth in the first two months was well below that of the same period last year.”

According to FocusEconomics, manufacturing operating conditions also improved in the same month. The continued expansion in the manufacturing sector likely fed through to the external sector, with merchandise exports growing at a solid clip in the first two months of the year. Meanwhile, retail sales gathered steam in February, underpinned by a rock-solid labour market, while tourist arrivals recorded double-digit growth in February which, in turn, likely propped up services exports and consumer spending.

“While growth is expected to cool from 2018’s robust showing, the economy should remain on solid footing in 2019. Industrial output and investment are expected to stay robust as Vietnam continues to solidify its position as a global manufacturing hub,” the report said. “Likewise, exports and foreign direct investment inflows will likely be resilient despite headwinds from slower global growth and US-China trade tensions.

FocusEconomics panelists project the economy will expand by 6.6% in 2019, which is unchanged from last month’s forecast, and 6.4% in 2020.

Fitch Solutions, which is under Fitch Ratings Inc., one of the world’s three biggest rating agencies, recently released its fresh report on South East Asia’s economy.

Results show that “We at Fitch Solutions expect Vietnam’s real GDP growth to slow to 6.5% in 2019 but note that it will remain one of the region’s fastest growing economies,” the report said. “The manufacturing sector will remain a key economic growth driver”

Specifically, Vietnam’s expected growth rate is higher than that expected for the whole of Southeast Asia (4.8%), Thailand (3.5%), Malaysia (4.2%), the Philippines (6.1%), Indonesia (5.3%), and Singapore (2.8%).

The reasons behind Fitch Solutions’ moderate forecast for Vietnam is that though it
expanded by 7.08% in 2018, “its increasing openness and reliance on foreign investment suggest that it is unlikely to be spared from the global growth slowdown arising from rising trade protectionism and tighter financial conditions.”

“Nevertheless, we expect the manufacturing sector to remain a key economic driver and to outperform the region. Vietnam has grown to become a manufacturing powerhouse, particularly with electronics, due to its relatively cheap and large labour force, geographical advantages, attractive tax breaks, stable political environment, and open-door trade policies,” said Fitch Solutions. “The opening up of the Vietnamese economy also came at an opportune time, as China had begun to shift away from lower-end and export-oriented manufacturing, to focus more on the domestic economy, allowing the former to gain market share. Additionally, Vietnam's continued commitment towards economic liberalisation will also attract foreign manufacturers to the country to leverage on its preferential trade access.”

However, according to Ousmane Dione, World Bank country director for Vietnam, much remains to be done for Vietnam to improve its business climate in favour of enterprises and investors, and economic growth.

“Reforms to promote domestic private sector development will need to be significantly stepped up, making it a primary driver for improved productivity and economic growth,” he said. “This entails the continued effort to remove obstacles to private business and strengthen the regulatory environment.”

He stressed that institutional reform will require capable and effective state institutions. “We all know that effective market institutions, and a transparent, clean and accountable state are lynchpins of development. Moreover, as Vietnam has become a middle-income country, development challenges are increasingly sophisticated and cross-sectoral in nature. Hence, effective coordination across ministries and agencies as well between central and local authorities are now more important than ever.”

Economic targets for 2019 set by the National Assembly

- GDP: grows 6.6-6.8%

- Total export turnover: up 7-8% year-on-year

- Trade deficit: below 3 % of total export turnover

- Total development investment capital: 33-34% of GDP or VND2.036-2.097 quadrillion (US$88.52-91.17 billion).

- Consumer price index: 4%

- Total budget revenue: VND1.411,3 quadrillion (US$61.36 billion)

- Total budget deficit: VND222 trillion (US$9.65 billion), equivalent to about 3.6% of GDP.