Major Economic Indicators

Source: Gerneral Statistics Office of Vietnam (GSO), IMF and CEIC
^a Up to the first quarter of 2009. All percentage changes are on year-on-year basis.
^b As of the end of the first week of April. No official average value available within the period.

Latest Development

• After expanding by 6.2% year-on-year (YoY) in 2008, Vietnam's economy slowed to 3.1% YoY in the first quarter of 2009 and is expected to record a 0.3% YoY growth in 2009.

• Vietnam's exports in the first quarter of 2009 totalled US$13.5 billion (up 2.4% YoY) and imports amounted to US$11.8 billion (down 45% YoY). The country recorded a trade surplus during the same period, reversing the trend of widening in trade deficit in recent years.

• In the first two months of 2009, Hong Kong's exports to Vietnam surged by 10.2% YoY to US$413 million while Hong Kong's imports from Vietnam increased by 5.9% YoY to US$124 million.

• In response to the global economic woes, Vietnam's government rolled out a US$1 billion worth stimulus package in December 2008, consisting mainly of subsidized loan interests in banks¡¦ corporate lending and tax cuts.

• In the first quarter of 2009, Vietnam's exporters faced challenges in markets, such as India, in light of some newly imposed tariffs on their exports, including textile products.

Current Economic Situation

Domestic Economy

Following a growth of 6.2% YoY in 2008, Vietnamese economy grew by 3.1% in the first quarter of 2009. Both the domestic and external sectors provided impetus to the country's growth. In light of the slowing external demand, the government called on local exporters to shift their attention to domestic retail markets. Amid the global economic downturn, the country's economy is expected by the EIU to slow further to 0.3% in 2009.

In response to the global economic woes, Vietnam's government rolled out a US$1 billion worth stimulus package in December 2008 with a view to shoring up economic growth, which included 4% interest subsidies for corporate loans and tax cuts to boost investment. The State Bank of Vietnam slashed its benchmark interest rate from 8.5% to 7% in February 2009. In effect, this lowered the lending rates of Vietnam's banks, which are not allowed to set their lending rate at more than 1.5 times the benchmark by law. As of the end of March 2009, the Vietnamese government managed to boost new loans of more than VND202 trillion (US$11.4 billion) under the loan subsidy programme.


External Trade

Amidst the global economic downturns and weakening external demand, Vietnam's international trade growth slackened in the first three months of 2009. With the combined impact of the sluggish external trade and the Tet effect (Tet is Vietnamese New Year, a negative season effect on trade) in January, export growth slowed to 2.4% YoY in the first quarter of 2009 while imports shrank by 45% YoY. The exports of textile, footwear, and electronics and computers fell by 0.1%, 10.8%, and 12.8% YoY respectively. Due to the rapid fall in imports, Vietnam recorded a trade surplus of US$1.7 billion during the first quarter of 2009, reversing the trend of widening trade deficit in recent years.

In 2008, the country's exports totalled US$62.9 billion (up 29.5% YoY) and imports amounted to US$80.4 billion (up 28.3% YoY). Aside from the widening deficit on the merchandise trade account in recent years, Vietnam's trade in services also recorded a deficit during the same period.

Vietnam became a World Trade Organisation (WTO) member in January 2007. While facing fewer restrictions and lower tariffs in export markets, Vietnamese manufacturers also benefit from the improving access to imports of cheaper raw materials and semi-processed inputs as Vietnam's import tariffs drop. Hence, export industries such as textile, footwear, electronics and so forth, were broadly expected to preserve their comparative advantage. This helped Vietnam sustain its exports growth in the past few years. On the other hand, import demand for machinery and equipment had been robust in the past years as Vietnam was concentrating on infrastructure and real estate development.

In January 2009, the EU removed Vietnamese footwear from the Generalised System of Preference (GSP), meaning that Vietnam's footwear would be subject to higher EU import duties, with an average increase of 3.5-5.5%. In particular, duties on leather shoes and canvas footwear would rise by 8% and 17% respectively. The rise in duties on leather shoes was in addition to the 10% anti-dumping duty that the EU had imposed since 2006. Coupled with the slowing external demand, Vietnam's footwear industry may face challenges to maintain its exports at the 2008 level in 2009.

In March 2009, India imposed anti-dumping duties on the textile exports from Vietnam, which would remain in force until 25 September 2009. The initial anti-dumping tariff was 16.32%. Vietnamese textile exports were estimated to have a market share of 3% in India. Apart from textiles, India also imposed a tariff of US$46.94 for every 1,000 units of Vietnamese recordable compact discs (CD-R).

On the other hand, Vietnam raised tariffs on steel imports by 3% to help local firms liquidate their stockpiles, effective from 1st April 2009. The steel consumption in Vietnam was estimated to fall by more than 20% in the first quarter.


WTO Accession

Upon its WTO accession, Vietnam was committed to bound tariff rates on most products ranging from zero to 35%, although tariffs on cars and motorbikes remain high, with certain sensitive products (such as eggs, tobacco, sugar and salt) subject to tariff quotas (higher duties for quantities exceeding the quotas).

Among other benefits, WTO accession allows Vietnam to take advantage of the phase-out of the Agreement on Textiles and Clothing, which eliminated quotas on textiles and clothing for WTO partners on 1 January 2005.

Foreign Direct Investment (FDI)

According to Vietnam's General Statistics Office, the country attracted total registered capital of over US$6 billion in the first quarter of 2009, down 40.1% YoY. The figure comprised new registered capital of US$2.2 billion and additional registered capital of US$3.8 billion.

Nevertheless, the country attracted 1171 licensed projects in 2008 with total registered capital of US$60.3 billion, more than tripling the registered capital from 2007. Foreign investment was focused on industrial and construction sectors, accounting for 54% of the total capital. The rest of the investment capital was mainly poured into the services and agro-forestry-fisheries sectors. In 2008, Malaysia was the largest foreign investor in Vietnam with US$14.9 billion. It was followed by Taiwan, Japan, Singapore, and Brunei.

Hong Kong's Trade with Vietnam

In 2008, Vietnam was the 17th largest export market for Hong Kong. Hong Kong's total exports to Vietnam totalled US$2.8 billion in 2008, up 19.4% YoY. Major export items included telecommunications equipment and parts (16% share of total exports), knitted or crocheted fabrics (10%), office machines (6%), alcoholic beverages (6%) and cotton fabrics, woven (4%).

Hong Kong's imports from Vietnam amounted to US$1 billion in 2008, up 34.4% YoY. Major import items included telecommunications equipment and parts (23% share of total imports), footwear (8%), electrical apparatus for electrical circuits (6%), other meat and edible meat offal, fresh, chilled or frozen (4%), and electric power machinery and parts (4%).

In the first two months of 2009, Hong Kong's total exports to Vietnam grew by 10.2% YoY to US$413 million while its imports from Vietnam increased by 5.9% YoY to US$124 million. Telecommunications equipment and parts were still the major items in Hong Kong's trade with Vietnam, accounting for 19% share of total exports and 26% share of imports. Other Major export items included other meat & edible meat offal, fresh, chilled or frozen (16% share), knitted or crocheted fabrics (7%), alcoholic beverages (6%). Also, other major import items included footwear (10%), rotating electric plant & parts (6%), crustaceans, molluscs & aquatic invertebrates, chilled, and frozen, dried, salted or in brine (4%).