Weak domestic consumption threatens Vietnam's GDP growth

By Ngan Anh, Thanh Nien News

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To boost economic growth, the Vietnamese government should cut interest rates, speed up bad debt relief in the banking system, and accelerate the equitization of state-owned enterprises, according to the National Financial Supervisory Commission. Photo: D To boost economic growth, the Vietnamese government should cut interest rates, speed up bad debt relief in the banking system, and accelerate the equitization of state-owned enterprises, according to the National Financial Supervisory Commission. Photo: D

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If Vietnam does not take effective measures to boost domestic demand, growth will only reach 5.6-5.7 percent this year, according to the National Financial Supervisory Commission (NFSC).
The NFSC's GDP growth estimate falls short of the 5.8 percent target set by the government due to low domestic demand, particularly from investors. Local private investment was equal to 10.3 percent of the country’s GDP in the first half of this year, compared to 11.1 percent from the same period last year.
Meanwhile, FDI disbursement increased only 2.3 percent between January and July, lower than the 6.4 percent seen during the corresponding period of 2013.
Low credit growth could be a reason for the slow local private investment expansion, the NFSC said. Credit grew by 4.5 percent in the first 8 months of this year, much lower than that the 6.4 percent during the same period in 2013, according to the State Bank of Vietnam.
Retail and consumption service revenue growth rose only slightly compared to last year, according to the report. The NFSC calculates that core-inflation increased 3.34 percent in August, lower than that of 4.43 percent in the same month last year.
Businesses, particularly private domestic ones, continue to face many difficulties. The average turnover at listed firms fell 22.6 percent in the second quarter of this year.
Gloomy business has hurt profits at credit institutions, according to the NFSC.
To boost economic growth, the government should cut interest rates, accelerate the alleviation of bad bank debts and push for the equitization of state-owned enterprises (SOEs), it said.
Dong loans currently begin at 7 percent annual interest for agriculture, export and other supported businesses and 14 for consumption, according to the central bank.
Deposit rates, meanwhile, have been capped at 5-6 percent a year for one to six-months terms, and up to 7.5 percent for longer-term loans.
Vietnam's economy expanded 5.18 percent in the first half of 2014 from a year earlier, according to the General Statistics Office.

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