2017 GDP grows the fastest in five years

Processing and manufacturing industries contributed significantly to GDP growth in 2017

Exceeding target

In the first quarter of 2017, Vietnam’s GDP grew 5.15 percent compared with the same period in 2016. This was the lowest quarterly growth rate in the past three years. At that time, the government and the National Assembly spent considerable amounts of time discussing whether to adjust the annual economic growth target. Economic research organizations were not optimistic about the feasibility of the 2017 GDP growth target of 6.7 percent.

Maintaining the annual GDP growth target unchanged, the government proposed a number of measures to promote growth. As a result, GDP grew 6.28 percent in the second quarter, 7.46 percent in the third quarter, and 7.65 percent in the fourth quarter. General Statistics Office of Vietnam (GSO) General Director Nguyen Bich Lam said the 6.81 percent annual GDP growth of 2017 compared with 2016, higher than the 6.7 percent target set by the National Assembly, reflected the timely measures adopted by the government and efforts made by sectors and localities.

In the opinion of economist Vo Tri Thanh, the main cause of this satisfactory GDP growth was the Vietnamese economy’s liberal trade policies. In 2017, the Vietnamese economy benefited from favorable changes in the global economy.

The total value of Vietnam’s trade with the rest of the world reached a record high in 2017, exceeding US$400 billion. For five months, from July to December, the monthly export value reached record highs, exceeding US$19 billion.

Despite heavy dependence on imported materials (over 91 percent of Vietnamese imports are materials for domestic production), Vietnam recorded a trade surplus of nearly US$3 billion in 2017, creating foreign currency resources for economic development. Measures undertaken by the Ministry of Industry and Trade to accelerate administrative reform to facilitate import, export activities and help businesses seek new export markets significantly contributed to foreign trade results.

Various other economic sectors also contributed to GDP growth. The industrial sector grew 7.85 percent compared with 2016, contributing 2.23 percentage points to the growth of the entire economy. In the service sector, wholesale and retail grew 8.36 percent and contributed 0.79 percentage point to GDP growth. The inflation rate was curbed at a reasonable level, 3.53 percent.

Notably, the GSO pointed to considerable improvements in the quality of economic growth, as well as the effectiveness of investment capital use.

Expectations for 2018

Experts predicted that from 2018 on, the Vietnamese economy would further benefit from favorable changes in the global economy. The role of the private sector, a driving force of the economy, is growing. GSO data show that contributions of the private sector to total investment in development in the past three years increased from 38.7 percent in 2015 to 40.6 percent in 2017. The private sector currently generates 41.8 percent of Vietnam’s GDP.

However, the Vietnamese economy will have to cope with numerous difficulties and challenges, including climate change and low labor productivity that creates a big gap between Vietnam and other countries in the region and worldwide.

In the opinion of economist Vo Tri Thanh, Vietnam will have a hard time achieving high growth in foreign trade value in 2018 despite benefiting from the growth of the global economy. Moreover, the Vietnamese economy still depends on traditional sectors, such as processing, manufacturing and real estate. These sectors are forecast to continue growing in 2018 but at lower rates compared with 2017. Therefore, the National Assembly was cautious, setting a GDP growth target of 6.5-6.7 percent for 2018.

To achieve this target, Vietnam has pledged to continue accelerating institutional reforms to enhance the effectiveness of state management, while at the same time improving the business environment and infrastructure to facilitate business operations. It will also apply flexible monetary policies that have proven successful in maintaining monetary market stability, control inflation and promote economic growth. Other plans call for tightening financial discipline and focusing on the serious implementation of laws and regulations related to taxes, fees and charges. Tax-related administrative procedures will be reformed to ensure effective collection. The allocation and disbursement of public investment capital will be accelerated, especially funds for infrastructure restoration projects, national target programs, and other important projects.

Further, authorities say they intend to pay greater attention to weather changes to minimize their adverse impacts on agricultural production and aquaculture. Vietnam will take the initiative in coping with climate change, sea level rise and salinity intrusion. It will promote processing and manufacturing industries, especially the processing of agricultural products and the manufacturing of input materials for businesses with foreign direct investment that have connections with the value chains of multinational groups. Other planned policies include the stimulation of domestic consumption and enhancement of the competitiveness of Vietnamese goods.