Vietnam’s GDP Growth Accelerates to 5.8% on Stimulus

Bloomberg

By Jason Folkmanis

Sept. 29 (Bloomberg) -- Vietnam’s economic growth accelerated this quarter, buoyed by domestic demand and government stimulus spending that has revived bank lending.

Gross domestic product expanded 5.8 percent from a year earlier after gaining 4.5 percent in the previous three months, according to the General Statistics Office in Hanoi. For the first three quarters, the economy grew 4.6 percent, compared with a revised 6.3 percent for the same period in 2008.

“Vietnam is certainly moving out of the slowdown,” said Ashok Sud, the Hanoi-based Vietnam chief executive for Standard Chartered Plc. “But getting back to the 7 or 8 percent growth that we were seeing before may take another couple of years.”

The government is focusing more on boosting economic growth this year than on easing inflation, Vietnamese President Nguyen Minh Triet said last week. The country has among “the most attractive” growth prospects in Asia over the “long run,” said Marc Faber, publisher of the Gloom, Boom & Doom Report, in an interview last week.

“Vietnam’s steady recovery remains on track,” Australia & New Zealand Banking Group Ltd. said in a research note today. “Industrial production, particularly from the state sector, continues to propel growth, while the retail sales momentum looks reasonably healthy.”

Retail sales have maintained growth rates of about 20 percent through the economic slowdown, according to research from Ho Chi Minh City-based fund manager Dragon Capital.

‘Reviving Well’

“Core GDP support continues to be generated mainly by domestic demand,” wrote Joseph Lau, a Hong Kong-based economist at Credit Suisse Group AG, in a note last week. “Consumption held up well during the downturn and even big-ticket purchases seem to be reviving well.”

This quarter’s growth was largely spurred by services, which account for 38 percent of the economy and which expanded 5.9 percent in the first nine months from a year earlier.

Transportation, storage and telecommunications grew 8.4 percent during the first three quarters, while financial services expanded 8.1 percent during the period.

“In a developing market, the financial sector normally grows at about twice the rate of GDP,” said Sud of Standard Chartered. “In the case of Vietnam this year, we also had the stimulus package’s interest-rate subsidy program, which helped drive bank lending.”

Stimulus Package

Measures put in place to counter the slowdown included a fiscal stimulus package valued at 8.6 percent of GDP that featured tax exemptions, reductions and deferments for businesses, increased bond sales, and an interest-rate subsidy program, central bank Governor Nguyen Van Giau said in an August letter to the Asian Development Bank.

The interest-rate subsidy scheme as well as a government infrastructure program have been the “key drivers” behind Vietnam’s economic growth this year, wrote Robert Prior- Wandesforde, a Singapore-based economist at HSBC Holdings Plc.

Industry and construction, which accounts for 40 percent of the Vietnamese economy, grew 4.5 percent in the first three quarters, with the sub-category measuring construction alone expanding 9.7 percent.

Vietnamese building has “recommenced” and a heavy supply of office space will probably enter the market within two years, Dragon Capital said this month.

“The economic recovery is spreading out from construction to include the manufacturing sector,” wrote Prior-Wandesforde of HSBC.

Agriculture, forestry and fisheries, which made up 22 percent of the economy during the first three quarters, grew 1.6 percent. Seafood production was hampered by “many difficulties,” the General Statistics Office said in a report today, with industry exports sliding 10 percent by value during the first three quarters.