Vietnam’s economy will continue to recover but at a slow pace next year, and the sustainability of its rebound appears weak, a senior economist has warned.
Nguyen Dinh Cung, head of the Central Institute for Economic Management, said: “The recovery in 2013-15 was driven by the growth in the mining industry. But such growth isn’t sustainable because we can’t drill for oil and dig for coal forever.”
The country’s gross domestic product grew 5.03 percent in 2012, the slowest pace in 13 years, amid a global economic slowdown. But it has recovered since 2013 and the government now expects 6.5 percent growth this year.
Last September the manufacturing Purchasing Managers’ Index (PMI) fell below the 50-point threshold, to 49.5, for the first time in two years, indicating a contraction in manufacturing for the month.
“This meant factory growth possibly reached its limit,” Cung said while speaking at a seminar on the country’s growth prospects for 2016 held by the CEO Club Ho Chi Minh City on Wednesday.
He also pointed out that the agricultural sector has encountered many difficulties and has been on a downward trend this year because its production mode, which mainly relies on household farming, is no longer suitable.
“Another factor that makes the economic growth not really sustainable is that the production sector still relies too much on imports.
“That is the reason why as soon as demand increased and the economy recovered, the trade deficit returned.”
The trade gap hit US$4.03 billion in the first nine months of this year, swinging from a surplus in the last three years. China continued to be the biggest source of goods for Vietnam, accounting for nearly 30 percent of its total imports.
Cung also expressed concern over the budget.
“The budget deficit has increased. Public debt has risen rapidly, especially in the past several years. These things will harm both economic stability and long-term growth.”
Worse, he said, this trend is showing no signs of stopping.
“The economy in 2016 won’t be much different compared to 2015. So any hopes for a breakthrough could lead to disappointment.”
Cung said the current lending interest rate – of 9-10 percent – is still higher than “the endurance and health of the business community, especially of small and medium companies, will allow.”
High loan costs push up local companies’ production costs, making it difficult for them to compete with foreign companies, he said.
Hirotaka Yasuzumi, chief representative of the Japan External Trade Organization in Ho Chi Minh City, said Vietnam’s small and medium-sized enterprises are in “serious condition.”
“Only 30 percent of them can access loans. So the government must support them with low-interest loans and credit guarantee.”
The government should also support them in developing human resources and technology to reform their business, he said.
More than 70,000 businesses closed down, went bankrupt or suspended operations in the first nine months of this year, according to the finance ministry.
Only around 53,000 new businesses opened during that period, it said, noting that the figure was down 8.7 percent year-on-year.