Gross domestic product grew 5 percent in the second quarter from a year earlier, according to figures released today by the General Statistics Office in Hanoi. The economy expanded 4.9 percent in the first half from a year earlier, the data showed, compared with a median estimate of 5 percent in a Bloomberg News survey of seven economists.

Vietnam’s central bank has cut its refinancing rate eight times since the beginning of 2012 to spur lending, and the government is setting up an asset management company to clear bad debt. The legislature last week voted to lower the corporate income tax rate to help businesses, while disbursed foreign investment rose 5.6 percent in the first half of the year to $5.7 billion, according to the Ministry of Planning & Investment.

“This isn’t going to be a strong growth year, but the economy is stabilizing,” said Gaurav Gupta, the Hanoi-based managing director at General Motors Co.’s Vietnam unit, citing lower interest rates and inflation than in previous years. “This year should set the base for the government to take actions to drive growth faster in the future.”

The dong has slipped about 0.4 percent this quarter, a smaller decline compared to other regional currencies including the Philippine peso and the Thai baht. The benchmark VN index has gained almost 16 percent this year.

Business Index

The economy expanded a revised 4.76 percent in the first quarter from a year earlier, and is set for a third straight year of sub-6 percent growth for the first time since 1988. The government targets 5.5 percent for this year after a 5.03 percent pace last year, the slowest since 1999.

Vietnam’s GDP may rise 6 percent in 2014, according to a directive by Prime Minister Nguyen Tan Dung posted on the government website this week. It also urged implementing monetary policy with the aim of stabilizing the currency in order to “efficiently” supply capital in the economy.

Exports in the first half rose 16.1 percent to $62.05 billion from the same period a year earlier, while imports climbed 17.4 percent to $63.5 billion for a trade deficit of $1.4 billion, the Statistics Office said today.

“Most of the growth is coming from the foreign-invested sector,” said Dominic Mellor, a Hanoi-based economist at the Asian Development Bank. “That’s how Vietnam has been able to sustain its exports and, to some degree, its growth.”

Bottoming Out

Credit for the five months through May 31 rose 2.98 percent, compared with a 0.56 percent increase in the same period a year earlier, according to the central bank. A business-climate index climbed in the second quarter from the first, according to the European Chamber of Commerce in Vietnam.

Industry and construction, which made up 38.7 percent of the economy in the first half of the year, grew 5.18 percent, today’s data showed. Services, which accounted for 43.1 percent of GDP, grew 5.92 percent. Agriculture, fisheries and forestry, which made up 18.2 percent of GDP, expanded 2.07 percent.

“There are some signs that growth may be bottoming out,” said Deepak Mishra, the Hanoi-based lead economist in Vietnam for the World Bank. “But it’s premature to conclude whether this is the beginning of a sustained recovery.”

By Jason Folkmanis - Bloomberg News - June 27, 2013

Vietnam eyes faster GDP growth of 6 pct in 2014

Vietnam will strive for annual growth of 6 percent in 2014, accelerating from 5.5 percent projected for this year, and aims to boost investment and reduce bad debts, the government said on Thursday.

It also will aim to cap annual inflation at 7 percent next year, Prime Minister Nguyen Tan Dung said in a directive seen on Thursday that ordered state agencies to start working on 2014 economic targets.

The government has an official inflation target of around 8 percent for this year but has hoped to keep it at 6.0-6.5 percent.

The directive provided no concrete details as to how Hanoi would breathe life into an ailing economy that expanded at its slowest pace in 13 years in 2012 and is still hamstrung by bad debt, a staggering amount of bankruptcies and slow retail and credit growth.

The government aims to boost domestic and foreign investment and ensure effective provision of credit, it said. The 6 percent stated was a target, not an official growth projection.

The Southeast Asian nation's economy grew an estimated 4.9 percent in the first half of 2013 from the same period last year, the General Statistics Office (GSO) said, confirming a government report released earlier.

Gross domestic product (GDP) in the second quarter ending June rose 5 percent from the same period last year, a slightly faster pace than seen in the first quarter.

"Production and business in the country are still facing difficulties, domestic market demand remains weak," the GSO stated in a report, adding that bad debts also weighed on the economy.

The government is under pressure to revive an economy which was once seen as one of Asia's rising stars.

One solution was setting up the Vietnam Asset Management Corporation (VAMC) to buy bad debt from troubled banks as of next month, in return for special bonds that would help boost lending.

The central bank has lowered its policy rates twice, on March 26 and May 13, each time by 1 percentage point, to help struggling businesses.

It is expected to cut rates by a further 50 basis points in the third quarter, Standard Chartered Bank said in a recent report.

The goal of 6 percent growth for 2014 was overly optimistic given the current state of the economy, said Vu Thanh Tu Anh, director of research at the Harvard Fulbright Economics Teaching Program in Ho Chi Minh City.

"It's not really practical. The economy is weak, with more than 200,000 registered bankruptcies in the past two years. Firms have low productivity and exports are heavily dependent on the global economy," he said.

"These are just three reasons to reconsider that goal."

Reuters - June 27, 2013