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Vietnam’s 2016 economy remains buoyant despite slower growth: OBG

Wednesday, January 25, 2017, 09:56 GMT+7

Vietnam’s economy in 2016 was highlighted by a GDP slowdown, an underperforming agriculture industry, slower inflation and increases in credit and foreign investment, the Oxford Business Group has reviewed.

“Strong domestic demand and record high foreign investment inflows underpinned the continued rapid growth of the Vietnamese economy in 2016,” the Dubai-based research firm said in its “Vietnam Year in Review 2016” report on Tuesday.

Vietnam’s economy grew at a 6.2 percent pace last year, slightly behind the target of 6.3 percent, but higher than the IMF estimate of 6.1 percent, according to date from the Government Statistics Office. The growth in 2015 was 6.68 percent.

It was the first GDP slowdown for the Southeast Asian country in four years, but per capita GDP in 2016 rose five percent to a new high of $2,215, the Oxford Business Group noted.

According to the report, the 6.2 percent GDP growth is remarkable, with Vietnam’s agriculture strongly marred by adverse climatic events in 2016, including the worst drought conditions in 30 years and repeated flooding events.

“Environmental factors, combined with lower commodity prices in some markets, saw agriculture’s growth trimmed to 1.36 percent for 2016, its lowest since 2011,” the report reads.

“The main factor at play in the downturn was a decrease in the volume and value of rice exports, which fell by 25.8 percent and 21.2 percent to 4.88 million tons and $2.2bn, respectively.”

Positive signs

One of the positive signs of Vietnam’s economy last year was the 21.82 percent credit growth in the banking sector, with the State Bank of Vietnam (SBV) projecting the rate to be somewhere between 18 percent and 20 percent.

Oxford Business Group reiterated a statement by SBV governor Le Minh Hung as telling reporters late December that if the credit growth is maintained this year, the central bank could raise its key interest benchmark to keep inflation and economic expansion balanced.

In the meantime, Vietnam’s inflation also slowed in 2016, with consumer price index rising 2.66 percent, well below the 5 percent increase forecast by the government.

The report noted, however, that pressure might be exerted on the index in 2017, as price rises gained momentum late in the fourth quarter of last year. The government has projected inflation of 4 percent for 2017. 

The Oxford Business Group also praised Vietnam for maintaining the dong at a steady course, with the currency only depreciating by 1.2 percent against the dollar throughout the year, just “unlike a number of emerging economies, which saw sharp falls in the value of their currency push up the cost of imports.”

The most significant performance of Vietnam’s economy in 2016 was the strong increase of foreign direct investment (FDI).

Actual foreign investment inflows rose by nine percent last year, reaching a record high of $15.8 billion, the report says, citing the Ministry of Planning and Investment data. In the meantime, additional FDI fund for existing projects, and commitment for new funding collectively reached $24.4 billion, up seven percent year on year.

Most of the FDI went to the manufacturing and processing sector, which accounted for 63.7 percent of all inbound investments, whereas the automotive wholesale, retail and repair sector made up 7.8 percent, and real estate, 6.9 percent.

As for 2017 outlook, the Oxford Business Group quoted the IMF as predicting Vietnam’s GDP to rise by 6.2 percent.

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