Viet Nam Economic Growth Rate Expected to Continue to Shrink in 2009

ESCAP’s annual survey analyses region’s challenges, proposes solutions

Bangkok (UN/ESCAP Information Services) – As a result of the global economic crisis, Viet Nam’s gross domestic product (GDP) growth rate decreased to 6.2 per cent in 2008, from 8.5 per cent in 2007. Although record high prices of rice provided some relief, the GDP growth rate is expected to continue falling, to 4.0 per cent, in 2009 according to the Economic and Social Survey of Asia and the Pacific 2009.

This year’s edition of the flagship publication of the United Nations’ regional arm – the Economic and Social Commission for Asia and the Pacific (ESCAP) – is entitled "Addressing Triple Threats to Development”. It analyzes the three global crises which have converged to threaten development in the Asia-Pacific region: the economic crisis, fuel and food price volatility, and climate change. The Survey provides a regional perspective as well as country-specific analyses, outlining ways in which economies in the region can move forward in unison towards a more inclusive and sustainable development path.

With rice prices increasing 150 per cent between January and May of 2008, Viet Nam’s export revenue was 45 per cent higher in the second and third quarter of 2008 compared to the same period in the previous year. However, as rice prices retreated and the recession in the United States and other industrialized countries deepened, the rate of growth of exports slowed down to 6.5 per cent in the fourth quarter and -3.7 per cent in January-February 2009.

While exerting a positive effect on export revenue, the soaring price of rice – as well as that of other food commodities and crude oil – pushed up the inflation rate from an average of 8.9 per cent in 2007 to an average of 24.4 per cent in the second quarter of 2008 and a peak of 29 per cent in October. In an attempt to control the escalation, the central bank increased its policy rate sharply between May and June 2008, from 8.75 per cent to 14 per cent. This policy along with plunging commodity prices in the second half of the year managed to gradually bring inflation down, to 14.8 per cent by February 2009.

In December, the government announced a fiscal stimulus package of D 17 trillion (US $1billion or 1.2 per cent of the GDP) which includes, among other measures, a four percentage point subsidy on the interest rates that enterprises pay for their loans and credit for small businesses. In early March, the government announced plans for a second and significantly larger fiscal stimulus package worth D300 trillion (US $17.6 billion or 21 per cent of the GDP) to be allocated to infrastructure, the manufacturing and export sectors, and projects designed to support social security and welfare.

The Survey emphasizes that in regards to fiscal stimulus packages such as Viet Nam’s, fiscal resources are limited and that today’s increases in budget deficits will eventually need to be cut. It is thus critical to be selective in the use of public funds. In particular, spending on policies that promote the long-term sustainability of energy and food markets as well as spending that addresses the deficiencies of current social protection systems are a valuable investment for the future while helping to support domestic demand in the short-term.

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The Economic and Social Survey of Asia and the Pacific 2009 is available online from 0500 GMT/1200 Bangkok on 26 March at: http://www.unescap.org/survey2009/index.asp

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