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13 Oct 2005

International Economy

Vietnamese Economy: Growing Despite World Oil Crisis Emerging as ASEAN Economic Champion


In the midst of surges in oil prices, Vietnam has emerged as the economic rising star within ASEAN. This year, the country is expected to exhibit economic growth of 8.5 percent, the highest in eight years. In a September 2005 report on their economic outlook released by the International Monetary Fund (IMF), the Vietnamese economy is projected will grow 7.5 percent, the highest in ASEAN, this year.

Favorable factors for Vietnamese economic growth in 2005:

1. Upbeat exports ? Vietnamese exports during the first nine months of this year totaled USD23.5 billion, growing by 21 percent, year-on-year. This growth could be attributed to the welcome afforded to Vietnamese goods by its major trade partners, i.e., the US and the European Union (EU), as well as the country's successful penetration into new markets such as China, the Middle East, Eastern Europe, etc. Among key export items from Vietnam are crude oil, garments, footwear, electronic equipment, computer accessories, rice, furniture and seafood.

2. Booming tourism ? Vietnam has rarely been affected by severe natural disasters, and its political situation has been quite stable. As a result, the country is among the most attractive tourist destinations in Asia. They have visa exemptions for tourists from ASEAN, Japan, South Korea and Europe, and this has been a plus to the country's tourist arrivals. Over the first nine months of this year, foreign tourist arrivals topped 2.6 million, rising by 23.3 percent, over-year.

3. Surging investment ? Foreign investment in Vietnam rose by 37.5 percent to USD4.090 billion during the first nine months of this year, thanks to its low wage advantage and low import tariffs on raw materials. The fact that Vietnam will soon allow increases in foreign shareholding in its listed companies from 30 to 40 percent is expected to draw around USD4.5-5 billion in foreign funds into the country, this year.

4. Purchasing power ? The Vietnamese have begun to spend more and enjoy shopping in department stores and supermarkets, over traditional open-air markets. They pay attention to safe consumption and choose clean, quality goods. It is expected that, this year, Vietnamese consumer spending will grow around 9-10 percent.

5. State investment ? At present, Vietnam is in a state of renovation; it has been necessary to improve various infrastructure. In the first three quarters of 2005, construction projects of the Vietnamese government rose by 24 percent with a total value of USD7,520 million. Important state sector construction projects this year include the construction of highways to international standards, electric power generating plants and harbor improvements, etc.

However, the Vietnamese economy is still prone to risk factors that must be urgently solved, which include:
  1. Inflation ? The Vietnamese authorities now estimate that inflation in 2005 will be 7.5 percent, which is 1 percent higher than their initial forecast. Prices have increased the most this year have been such items as homes, construction materials, garments, transportation costs and tuition, etc.
  2. Trade Deficit ? Vietnam's trade deficit rose by 15 percent to USD3,890 million in the first 9 months of 2005, because Vietnam had to import more oil. It is estimated that the ratio of Vietnam's current account deficit to their GDP will be around 4.7 percent, this year, compared to 3.8 percent in 2004.
  3. Falling Agricultural Output ? Coffee and rice are Vietnam's most important economic produce, but production volume is expected to drop during the cultivation seasons in 2005-2006 due to the effects of drought at the beginning of the year, and the abrupt flooding at the end of the year, which will affect coffee and rice exports in 2006.
  4. Power Shortages ? Demand for electricity in Vietnam has increased rapidly at an average rate of 16 percent per year. If demand continues to grow at a similar rate, but Vietnam does not increase its power generating capacity in line with demand, it is expected that Vietnam may face power shortages during 2006-2007, which will affect goods manufacturing and general service businesses, as well as foreign investment.

International Economy