Vietnam’s economy expanded at the slowest pace since 1999 as higher interest rates and lending restrictions earlier this year damped construction and a global recession hurt tourism.
Gross domestic product in the Southeast Asian nation grew 6.2 percent this year, according to the General Statistics Office in Hanoi, slowing from 8.5 percent in 2007. The expansion fell short of a 6.7 percent government target, which earlier in the year had been set as high as 9 percent.
First-half economic overheating caused Vietnam’s government to restrict credit, ending a property boom that had driven construction growth. Concern the global economic slump will hurt demand is discouraging local companies from taking on new debt now even as interest rates fall, threatening to further slow the Vietnamese economy in 2009.
“This is a more resilient result than I would have expected considering the global economy, but Vietnam still hasn’t felt the full impact of the global downturn yet,” said Sherman Chan, a Sydney, Australia-based economist at Moody’s Economy.com. “The first half of 2009 will be the toughest time.”
Growth in the industry and construction category, which accounted for 40 percent of the Vietnamese economy, slowed to 6.3 percent in 2008 from 10.6 percent in 2007, the General Statistics Office said. The sub-category that includes only construction grew 0.02 percent from a year earlier.
“In the first half the whole construction industry was booming, and we couldn’t produce steel fast enough to sell it,” said Alan Young, chief operating officer of Vietnam Industrial Investments Ltd. “Then there was a very sudden drop in demand. In the worst case, we’re looking at 2009 as a survival year.”
Growth in services, which accounted for 38 percent of gross domestic product, slowed to 7.2 percent from 8.7 percent. Financial services grew 6.6 percent from a year earlier.
“Banks have tightened lending requirements, and overall corporate borrowing demand has cooled in line with near-term investment prospects,” fund managers Indochina Capital Advisors Ltd. said in a note this month.
Services were also affected by sluggish growth in tourism- related industries, with the General Statistics Office saying in a separate report that the number of international visitors to Vietnam rose 0.6 percent in 2008.
Agriculture, forestry and fisheries, which accounted for 22 percent of the economy, expanded at a 3.8 percent rate, up from 3.4 percent in 2007.
2009 Growth Target
Vietnam’s government is targeting 6.5 percent economic growth next year, and is considering a 100 trillion-dong ($5.7 billion) plan to stimulate demand, according to a VietnamNet article dated Dec. 17 and posted on the Web site of the country’s Ministry of Finance.
The International Monetary Fund forecasts a 5 percent expansion and CLSA Asia-Pacific Markets predicts 3.5 percent growth for Vietnam in 2009.
Vietnam’s strategy of pursuing “growth at all costs” is risky with a current-account deficit that may have reached 13 percent of gross domestic product this year, Anthony Nafte, an economist at CLSA Asia-Pacific Markets, wrote in a note this month.
“The only way that this policy could succeed is if the large foreign-direct-investment inflows of recent years were to be sustained,” Nafte said. “But this will be difficult in the current environment of scarce foreign capital and high risk aversion.”