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Vietnam economy expands at fastest pace in five years

At a press conference releasing 2015 economic data in Hanoi on December 26, Director of the GSO Tran Bich Lam said the rate exceeded the goal of 6.2 percent set by the National Assembly and was much higher than the figures of 2014 (5.98 percent) and 2013 (5.42 percent).

Lam said the stable macro-economy, a 10-year low inflation, high confidence index and key industries’ good growth are highlights of the economy in 2015.

Pham Dinh Thuy, Head of the Industrial Statistics Department, said in 2015 some industries showed signs of strong recovery and the entire industrial sector’s production index increased 9.8 percent in comparison with 2014, higher that the level of 7.6 percent in 2014.

The processing and manufacturing industry’s inventory index as of December 1, 2015 rose 9.5 percent compared with 2014, lower than the 10.2 percent and 10 percent increases seen in 2013 and 2014, respectively.

The average consumer price index for 2015 upped only 0.63 percent from the 2014 figure, the lowest level in 14 years.

The inflow of foreign direct investment (FDI) as of December 15 saw a 12.5 percent year-on-year increase with 22.76 billion USD pouring into both new and existing projects. The number of new projects went up 26.8 percent to 2,013 with a total registered capital of 15.58 billion USD, a drop of 0.4 percent.

FDI disbursement also rose 17.4 percent, equal to 14.5 billion USD.

Despite experiencing some difficulties, Vietnam’s export value increased 8.1 percent to reach 162.4 billion USD, while import value was 165.6 billion USD.

The country also saw the establishment of 94,754 new businesses in the year with a combined capital of 601 trillion VND, up 26.6 percent in terms of the number of businesses and 39.1 percent in terms of capital from 2014.

Despite impressive results in 2015, Lam said the country will face more challenges than advantages in 2016, especially if the oil price goes down to 30 USD per barrel.

Le Thi Minh Thuy, Head of the Trade and Service Statistics Department, said if the electricity price is adjusted up, the CPI and production costs will go up, affecting economic growth.

She added that the exchange rate policy has been carried out relatively flexibly but it is facing pressure from external factors like the FED’s interest rate increase, market psychology and trade deficit.

The implementation of free trade agreements will also put more pressure on the economy, especially domestic businesses while bad debt has not been tackled completely.

According to the GSO General Director, the government, ministries and localities, business communities and the whole society will have to be proactive and flexible to overcome difficulties for achieving social-economic goals.

Vietnam’s 2016 social-economic goals include an economic growth of 6.7 percent, an inflation rate of under five percent; an export growth of 10 percent and a trade deficit of less than five percent of total export value.

Trade deficit

Despite indications showing that the economy is heading on the right track, Viet Nam this year fell back into a trade deficit following three consecutive years of a trade surplus.

Import value was estimated at about $165.6 billion in 2015, while the export value was about $3.2 billion behind.

China, which accounts for more than 28 per cent of the import value and traditionally serves as the biggest exporter to Viet Nam, also saw a remarkable widening trade deficit this year. The number climbed as high as $32.3 billion, an increase of 12.5 per cent compared to the previous year.

The trade deficit with China was expected, as Viet Nam's economy, at least in the short term, is still largely dependent on importing material resources from China.

The fact that China continuously devalued the yuan throughout the year may have partly contributed to the trade deficit, although Viet Nam's leadership also ordered the depreciation of the currency three times in 2015 in an effort to slow the import flow from its neighbour.

Japan, after several years of serving as an export market for Viet Nam, made a turnaround this year and saw more than $300 million of export value exceed the value of imports from Viet Nam.

Labour productivity gaps widen

Despite an increase in the labour productivity this year, particularly 6.4 per cent in comparison to 2014, the gaps between Viet Nam and other neighbouring ASEAN nations kept widening, said GSO's Integral Statistics Department Head Nguyen Thi Ngoc Van.

According to Van, the labour productivity gap between a Vietnamese and a Singaporean in 1994 was about $62,000, but has now increased to more than $92,500. The trend repeated in comparison with Malaysia and Thailand, with the gap stretching by about $10,000 and $1,000 respectively.

Lam said that there would be much work to do to improve labour productivity, especially when Viet Nam has signed a number of trade agreements, including the historic Trans-Pacific Partnership (TPP), which is expected to elevate the competition in both external and domestic markets.

"We can only compete through strengthened labour productivity," Lam said.

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