Vietnam: Economic Data Point To Gathering Strains


Dr Adam Fforde

Prices fell in Vietnam in March, pointing to the weakness of demand and adding to pessimism. Many small traders have closed, and the supermarkets that sprang up in the good days of the mid 1990s are also feeling the pinch. The slide in the value of the Dong against the US dollar was halted by various measures taken by the government. This maintains the Dong at its high and overvalued level. Investment is falling away sharply, adding to deflationary pressures. Industrial output growth in the first quarter was around 13 per cent on a year-on-year basis, a major slowdown but nothing compared with the absolute falls seen elsewhere in the region. Foreign invested companies showed a 21 per cent year-on-year growth, with the non-state domestic sector slowing to only 6%. Heavy industries such as petroleum, electricity, steel and cement are showing fast growth as new projects come on stream and state support continues. Large parts of the Vietnamese industrial sector are expecting further major problems in coming months. Foreign trade remains positive. Exports are up 13% on the year for the first two months of 1998, compared with a 2% fall for imports, but export growth is slowing fast. Foreign invested companies were spearheading the growth, but with the problems in the region their positive impact on the Vietnamese is far less than before. Total new FDI projects signed up in the first 3 months of the year were worth only $1 billion, with a sharp fall in the numbers approved. Government measures are seen as ineffective. Early high degrees of interest in real estate are now resulting in increasing levels of unoccupied rooms and space. The Vietnamese economy is under pressure, but not yet enough to push for major policy changes, including a 'crash' program of privatisation.

WATCHPOINT: Domestic Dong interest rates will be an indicator of collapsing public confidence in the value of the currency - they are still rather low.


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