Economy cools after interest rate increases
01-OCT-2008 Intellasia | Bloomberg
Oct 1, 2008 - 7:00:00 AM
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Vietnam's economic growth slowed in the first three quarters of the year as higher interest rates and limitations on bank lending hurt construction in the Southeast Asian nation.
The economy expanded 6.5% through September from a year earlier, down from 8.2% in the first three quarters of 2007, according to a release today from the general Statistical Office in Hanoi. The government is targeting 7% growth for the full year, having revised the figure from an earlier goal of as much as 9%.
"The economy has cooled considerably,'' wrote Matt Hildebrandt, an economist at JPMorgan Chase & Co in Singapore, in a research note sent today. "A combination of tighter monetary and fiscal policies, high inflation, and falling domestic asset prices in Vietnam this year has weakened domestic demand.''
The State Bank of Vietnam has increased interest rates three times and restricted growth in bank lending in a bid to slow the fastest inflation since at least 1992. Soaring prices and a surging trade deficit contributed to predictions that the dong was on the verge of a currency crisis earlier this year.
In May, Morgan Stanley said Vietnam was heading for a currency crisis, and the dong fell from 16,219 per dollar at the time of the report to 16,850 in early July. The dong is currently trading at about 16,600 per dollar.
Stability over growth
Vietnam's government "prioritises stability over growth,'' Daniel Hui, a foreign-exchange strategist at HSBC Holdings Plc in Hong Kong, wrote in a research note last week. The country is facing the "the question of how rapidly tightened credit will exacerbate downside growth risks, especially given a likely persistence of tight policy, and the ongoing global demand slowdown and global financial market stress.''
Industry and construction, which accounted for 40% of the Vietnamese economy during the first nine months, grew 7.1%, slowing from 10.1% during the same period in 2007. The sub-category consisting of construction alone contracted 0.3%, compared with a 10.1% expansion in the same period a year earlier.
"The price of raw materials has increased sharply, and companies' access to capital is limited because of high interest rates,'' Nguyen Duc Hoa, general director of the general Statistical Office, wrote in a report released today along with the economic numbers.
Oil production
Mining, including oil production, shrank 4.7%. Vietnam Oil & Gas Group may fall short of its production target for the year, the Vietnam News Agency reported on September 16, as Southeast Asia's third-biggest oil-producing nation heads for its fourth straight year of declining output.
Processing of apparel and other goods expanded 11.5%. Shipments of garments, Vietnam's second-biggest export after crude oil, rose 20% in the first nine months of the year.
Services, which made up 39% of the Vietnamese economy during the first three quarters, grew 7.2%, down from 8.5% in the same period a year earlier. Expansion in hotels, restaurants and finance cooled.
"People in Vietnam are trying to control costs, so there's less travel than we saw a year ago,'' Paul Stoll, HCM City-based chief executive of Celadon International Hotel Management Joint-Stock Co., said in a telephone interview today. "Inflation has had an impact. Salaries haven't increased as much as prices, so people have less money.''
Fishing, forestry and agriculture, which accounted for more than a fifth of gross domestic product, grew 3.6%, up from a 3.2% pace during the first three quarters of 2007. A strong rice harvest contributed to the improved agricultural performance, according to Hoa of the general Statistical Office.
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