Vietnam’s Economy Sees Strong Growth in the First Half of 2018
Vietnam’s economy expanded by 7.08 percent in the first six months of 2018, the highest in eight years, primarily driven by the growth in services and industry-construction sectors. In addition, exports and foreign direct investment (FDI) also witnessed higher growth in the first half of 2018 (H1), compared to the same period last year. In spite of a forecast of a slowdown in the second half of the year, the government is confident of achieving its annual target of 6.7 percent.
In the first half of the year, the economy grew by 7.08 percent, fastest since 2011. The first quarter had witnessed higher growth at 7.45 percent, while growth in Q2 had slowed down to 6.79 percent.
Agriculture, forestry, and fishery grew by 3.93 percent in H1, contributing 9.7 percent to the overall growth. The industry and construction sector expanded the fastest at 9.07 percent during the same period, contributing 48.9 percent to the overall growth, while the services sector grew by 6.9 percent, contributing 41.4 percent to the general growth rate.
The services sector had the highest share in GDP in H1, at 41.82 percent, followed by industry and construction at 33.78 percent. Agriculture, forestry, and fishery represented 14.15 percent of the GDP, while taxes less subsidies on production accounted for 10.25 percent.
Agriculture, forestry, and fishery
The agriculture, forestry, and fishery sector witnessed the highest growth since 2012. The fishery sector grew the fastest at 6.41 percent, highest since 2011, followed by forestry at 5.12 percent. Agriculture grew by 3.28 percent, and contributed the highest to the overall growth rate compared to fishery and forestry, at 0.45 percent.
Industry and construction
Industry grew by 9.28 percent, compared to the same period in 2017. Manufacturing grew the fastest in seven years at 13.02 percent. Mining and quarrying witnessed a negative growth at 1.3 percent, while the construction sector maintained its momentum and grew by 7.93 percent.
In the first six months, the services sector grew by 6.9 percent, highest in seven years. Wholesale and retail sales, which continues to be the largest contributor to the growth rate, expanded by 8.21 percent in H1, while the finance, banking, and insurance sector grew by 7.58 percent.
Accommodation and catering services grew by 7.02 percent, followed by transportation and warehousing at 7.67 percent and real estate at 4.12 percent.
Exports in the first half of 2018 grew by 16 percent, compared to the same period last year, to US$113.93 billion. Domestic sector exports grew by 19.9 percent to US$ 33.07 billion, accounting for 29 percent of the overall exports.
The FDI sector exports grew by 14.5 percent compared to the same period in 2017 and reached US$ 80.86 billion, accounting for 71 percent of the total exports.
Mobile phones and spare parts accounted for the highest share at US$22.5 billion, up 15.4 percent, while garments and textile grew by 13.8 percent to US$13.42 billion. Computers, electronic products, and components exports grew by 15.7 percent to US$13.45 billion.
Overall H1 imports increased by 10 percent to US$111.22 billion, leading to a US$2.7 billion surplus. Imports by the domestic sector grew by 12.9 percent to US$46.01 billion, while imports for the FDI sector grew by 8.1 percent to US$65.21 billion.
Imports of computers, electronic goods, and spare parts grew by 14.3 percent, to US$19.7 billion, while machinery, equipment, and components imports reached US$16.15 billion, down 7.3 percent. Imports of mobile phones and spare parts also reduced by 4.4 percent, to US$5.97 billion, while fabric imports grew by 17.1 percent to US$6.43 billion.
This year, Vietnam had a trade surplus of US$2.71 billion in the first six months, with the domestic sector posting a deficit of US$12.94 billion, and the FDI sector recording a surplus of US$15.65 billion. This highlights the importance of the FDI sector in the economy and the low competitiveness of domestic firms.
Exports of services from January to June 2018 reached US$7.5 billion, growing by 16.4 percent compared to last year. Travel service exports accounted for the majority at US$5.2 billion, growing by 18.9 percent, while transportation service exports grew by 11.8 percent to US$1.4 billion.
Service import turnover grew by 6.5 percent to US$8.8 billion, leading to a trade deficit of US$1.3 billion. Transportation services accounted for almost half, at US$4.2 billion, growing by 7.5 percent. Travel services grew faster at 9.4 percent to US$2.7 billion.
FDI in the first six months of 2018, which included new and additionally registered capital, capital contribution, and share purchases, reached US$20.33 billion, growing by 5.7 percent compared to H1-2017. FDI disbursed stood at US$8.37 billion, up 8.4 percent.
Investment certificates were granted to 1,366 newly registered projects with total investments of US$11.8 billion, down 0.3 percent compared to the same period in 2017. However, the number of projects in H1 of 2018 grew by 15.5 percent.
Additional registered capital reduced by 13.8 percent to US$4.43 billion, while capital contribution and share purchases reached US$4.1 billion, up 82.4 percent compared to the same period in 2017.
Out of the 87 countries and territories that invested in Vietnam in H1, Japan led at US$6.47 billion, accounting for 31.8 percent of the total registered capital. South Korea followed at US$5.06 billion, while Singapore invested US$2.39 billion.
Hanoi attracted the highest FDI among the 55 provinces and cities that received foreign investments, with a total registered capital of US$5.87 billion, accounting for 28.9 percent of the total. Ho Chi Minh City was second with registered capital reaching US$3.68 billion, followed by Ba Ria – Vung Tau at US$1.93 billion.
The manufacturing and processing industry continue to lead in FDI attraction in H1, with total registered capital reaching US$7.91 billion, accounting for 38.9 percent of the total. Real estate followed at US$5.54 billion, while the wholesale and retail sector attracted US$1.5 billion in investments.
Outward FDI in H1 stood at US$ 263.08 million, which included US$222.48 million in 67 new projects and US$40.6 million in 16 capital adjustment projects.
Leading sectors were banking/finance and agriculture, forestry, and fisheries, which invested US$106.17 million and US$63.47 million respectively. Processing and manufacturing sectors invested US$48.9 million outside Vietnam.
Majority of the outward investments flowed to Laos, which accounted for 31.89 percent of the total investment capital, at US$83.9 million. Slovakia, Cambodia, and Australia followed at US$35.93 million, US$32.3 million, and US$31.63 million respectively.
Growth in the second half of 2018 is predicted to be lower than first due to a deceleration in growth in agriculture and industry, primarily in mining. Growth in Q3 and Q4 is predicted to reach 6.53 percent and 6.36 percent respectively.
In addition, with the H1-2018 consumer price index reaching 3.29 percent, inflation can increase in the latter half of 2018, which will inhibit long-term growth. Vietnam also needs to defend itself from trade protectionist policies which can have a negative effect on exports and increase imports.
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