Pressure builds up on Vietnamese economy over slow GDP growth

Oil, textile, and footwear have been given the biggest expectations

An oil rig is seen off Ba Ria-Vung Tau Province, located in southern Vietnam.

With Vietnam’s economy slowing down in the first quarter, the government has requested that state-run corporations and associations pull out all the stops to help the country achieve the full-year GDP growth target.

Vietnam logged a 5.1 percent GDP growth rate in the first three months of this year, the slowest quarterly pace in three years.

Fearing that the low Q1 growth would prevent Vietnam from meeting the full-year 6.7 percent target, Deputy Prime Minister Trinh Dinh Dung chaired a meeting on Tuesday with major state enterprises to find a solution for boosting economic performance.

“GDP growth plays a crucial role as it creates bigger economic values, generates more jobs and shortens the development gaps between Vietnam and other regional countries,” the deputy premier said at the meeting in Hanoi.

Vietnam must post respective growth rates of more than 6.2 percent, nearly 7.3 percent and about 7.5 percent in the remaining three quarters to be able to meet its GDP target, according to the General Statistics Office.

The expectations are now placed on the oil and textile and garment sectors, the country’s biggest foreign currency earners.

Vietnam plans to exploit some 12.28 million metric tons of crude oil in 2017, but the Ministry of Industry and Trade is considering increasing production by one million tons to contribute to the ‘GDP boosting’ plan.

Deputy Minister of Industry and Trade Hoang Quoc Vuong said this is not a tall order as production already topped 3.46 million metric tons in the first quarter.

“If oil price in 2017 averages US$55 a barrel, we will post a revenue of VND450,000 billion [$20.09 billion], exceeding our target by more than VND12,000 billion [$535.71 million],” Do Chi Thanh, deputy general director of the oil and gas giant PetroVietnam, said.

Hopes for boosting exports for stronger GDP growth are also pinned on the footwear and textile and garment sectors.

Vinatext, Vietnam’s textile and garment giant, sets a ten percent growth target for 2017, seeking an export income of around $31 billion.

However, general director Le Tien Truong said the road is bumpy ahead for the company to achieve the target, even though its first-quarter growth was 12 percent.

“Production grew 12 percent in the last quarter but our profit was the same as last year,” Truong said, pointing to regional competitors such as China, India and Indonesia.

Those countries have depreciated their currencies against the dollar by 12-14 percent, whereas the USD-VND exchange rate remains stable.

“Should the government adjust the forex rate by 7-8 percent, our textile and garment sector will be more competitive,” he said.

The same pressure is on the footwear sector, with tough competition particularly from China, according to the Vietnam Leather, Footwear and Handbag Association (LEFASO).

“With China recently investing heavily in automation, some Chinese footwear companies now need only 40 workers for a production line instead of 120,” LEFASO deputy chairman Diep Thanh Kiet said.

LEFASO raked in $16 billion from footwear and handbag exports in 2016 and targets to take revenue to $17.5 billion this year, though Kiet admitted the goal may not be met due to the above challenges.

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