Vietnam's economy expanded at fastest pace since 1996
Vietnam's economy expanded this year at the fastest pace since 1996, led by manufacturing and services, after the Southeast Asian country joined the World Trade Organization.
Gross domestic product increased 8.5 percent in 2007 after rising 8.2 percent last year, the General Statistics Office said in a statement in Hanoi today. That was the quickest since the economy grew 9.3 percent 11 years ago.
Foreign direct investment jumped to more than $20 billion this year, from $12 billion in 2006, with companies including Hon Hai Precision Industry Co., the world's largest contract electronics manufacturer, and Compal Electronics Inc. taking advantage of cheaper labor costs in Vietnam.
``The government is quite committed to its economic reforms,'' said Prakriti Sofat, an economist at HSBC Holdings Plc in Singapore. ``It's basically industrial growth, and the manufacturing sector is obviously doing very well.''
Industry and construction account for almost 42 percent of Vietnam's GDP. Manufacturing grew 12.8 percent, construction increased 12 percent, and the hotel and restaurant sector expanded 12.7 percent, according to today's release.
``Going forward, Vietnam has a lot of potential for tourism,'' said Sofat at HSBC, which expects Vietnam's economy to expand 8.5 percent in 2008. The bank had a full-year forecast of 8.3 percent growth for this year.
Government Targets
Vietnam's January accession to the World Trade Organization released it from U.S. quotas on textile exports and detailed market access to be given to overseas companies, helping economic growth. The value of GDP increased to $71 billion from $61 billion last year, according to the GSO.
The government is targeting economic expansion of about 9 percent next year. The economy grew 9.5 percent in 1995, the year after a U.S. trade embargo was lifted.
``Vietnam is an economy with much development potential and an attractive destination for international investors,'' Prime Minister Nguyen Tan Dung said in a Dec. 6 speech at an annual meeting between the government and international organizations.
To shore up growth, the government needs to press ahead with its sales of stakes in state-owned banks in order to improve efficiency of the banking system and boost the equity market, HSBC's Sofat said.
The government last week raised 10.5 trillion dong ($656 million) selling a 6.5 percent stake in Joint-Stock Commercial Bank for Foreign Trade of Vietnam, paving the way for telephone and beer companies to sell shares in 2008.
Growth Restraints
The benchmark VN Index rose 23 percent this year, rounding out a fourth yearly gain. The rally in the equity market has improved sentiment among the 85 million Vietnamese, boosting the domestic economy, Sofat said. Income per capita has increased to $833 from $720 last year, according to a Ministry of Planning and Investment statement last week.
Economic growth may have been hampered by low production capacity, increases in prices of imported goods, and natural disasters, according to today's statement from the GSO.
``There have been a number of shortcomings and weaknesses in our economy,'' it said. ``Prices of important imported raw materials such as petroleum, gasoline, steel, fertilizer, plastic have been rising quickly in the world market.''
Faster economic growth has spurred inflation, with consumer prices rising 12.6 percent in December from a year earlier, the biggest gain since 1995. The government also let the dong gain for the first year since 1995 to ease prices of imported goods.
Vietnam's economic growth has also been restricted by typhoons and floods in the last couple of months, as well as an outbreak of cholera, the GSO said.
By Beth Thomas - Bloomberg - December 31, 2007.
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