A crippling drought in Vietnam will probably cause the government to miss its 6.7 percent growth target this year, adding to pressure on new Prime Minister Nguyen Xuan Phuc as he seeks to reassure investors of his economic reforms.
The economy will need to expand 7.6 percent in the second half of the year to achieve its full-year goal, Phuc said in a prepared speech he is due to deliver to lawmakers in Hanoi next week and obtained by Bloomberg News. The target “will be hard to reach,” he said.
Phuc took office in Vietnam in April amid the worst drought in 30 years and falling oil revenue. That’s putting the brakes on an economy that’s otherwise benefited from a booming export industry as companies such as Samsung Electronics Co. opened factories to build and ship smartphones.
Growth was little changed at 5.6 percent in the second quarter. Rising food prices are also pushing up inflation, which may exceed the government’s 5 percent target this year, Phuc said in the speech. Exports may decline in some European markets after slowing to 5.9 percent in the first half of the year, according to the speech.
“There is still some chance” for the economy to reach its growth target this year if government ministries and provinces redouble efforts to boost output in industries from agriculture to manufacturing and construction, Phuc said in the speech.
Phuc’s warning is a signal that Vietnam won’t repeat past mistakes of growth at all costs that led to inflation soaring to 23 percent inflation in 2011, said Trinh Nguyen, a senior economist for emerging Asia at Natixis SA in Hong Kong.
“He accepts the impact of adverse weather events and subdued global demand for not achieving growth targets,” she said. “This means that at least Vietnam is not returning to its fast growth at all costs approach, which caused inflation to spike massively, the currency to weaken, sharp economic slowdown and inefficient allocation of resources.”
The government will intensify measures to help businesses, including steps to spur domestic demand, tourism and industries that provide inputs to manufacturers, according to the speech. Policy makers will also closely monitor the fallout from the U.K.’s vote to leave the EU, and make timely changes to monetary policy to limit the negative impact on Vietnam’s money market, it said.