Exploiting resources for economic development

According to the General Statistics Office, the growth rate of Vietnam’s economy rose to 6.17% in the second quarter even higher than that experienced in the first quarter (5.15%), bringing Vietnam’s GDP in the first half of the year to 5.73% higher than the same period of 2016, however, reaching the economic growth rate of 6.7% in 2017 is still considered as a great challenge.

Illustration image (Photo: Thai Thien).

The Agricultural sector maintained a stable growth rate of 2.65%, meanwhile the services sector increased by 6.85%. Some sectors contributed remarkably to general growth such as the retail and wholesale sector with an increase of 7.1% compared to the same period of last year - the largest contribution; real estate with an increase of 3.86% - the highest increase in recent five years.

The industry and construction sector still accounts for nearly one third of GDP, but only up 5.33%, lower than the 9.66% and 7.01% compared to the same period of 2015 and 2016, mainly due to the Mining industry decreasing by 8.2%. Thus, although the Manufacturing sector maintained solid growth at 10.52% and construction also grew by 8.5% it is unable to push the Industrial and Construction sectors higher.

The task of economic growth in the second half of 2017 is expected to be difficult, especially when short-term growth factors and resources have not been exploited, and the implementation of economic restructuring and growth model transformation is slow. In order to reach the highest possible economic growth target for the second half of the year and 2017, Vietnam should to focus on measures to increase aggregate demand for the economy as follows:

Firstly, it is necessary to stimulate private and household consumption through maintaining stable prices, even decreasing the prices of some goods and services market segmentations of high demand. In the first half of 2017, final consumption expenditure contributed 8.48 percentage points to GDP although it only increased 7.04% over the same period in 2016 while asset accumulation rose 9.50% and contributed 4.26 percentage points to the GDP. In the first six months of 2017, the total retail sales of consumer goods and services reached VND1,924 trillion, up 10.1% over the same period last year, excluding the fact that the price factor rose by 8.4% (an increase of over 8.1% the same period of 2016). Consequently, the room for increasing final consumption expenditure in using GDP impacts more than increasing asset accumulation.

Secondly, it is necessary to stimulate aggregate demand to accelerate economic growth in the short run through increasing investment, especially state investment. However, in the context of scarce state investment resources, it is virtually impossible to increase the scale of investment. Total social investment, which was disbursed in the first six months of 2017, was estimated at VND674.8 trillion, up 10.5% over the same period of last year and equivalent to 32.8% of GDP. Moreover, total outstanding credit in Vietnam’s banking system grew 7.54% in the first half of this year compared to the end of 2016, hitting a six-year high, while the state budget deficit hit VND 32.5 trillion. Strong credit growth, however, also means a rapid accumulation of debt. If capital investment is not used effectively, credit growth will result in risks of instability to macroeconomics.

Finally, export turnover in the first half of 2017 maintained a high growth rate of 18.9%, but import turnover increased 24.1%, so trade deficit reached US$2.7 billion, with domestic economic trade deficit at US$12.92 billion. Trade not only failed to contribute to economic growth, moreover, the trade deficit also decreased by 7.01 percentage points in terms of overall growth. Consequently, it is necessary to form measures to limit imports, thus minimizing the size of the trade deficit and boosting GDP growth.

Economic growth in 2017 still has the opportunity to achieve its goal if it focuses on effective and sensible stimulus measures.

(Source: NDO)