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Severe Drought Hammers Vietnam Growth
World Economy

Severe Drought Hammers Vietnam Growth

It’s been understood for a while that Vietnam will probably not reach the ambitious growth target it set for itself in 2016. Its growth in the second quarter was a pretty lackluster 5.6%, bringing first half growth to a total of 5.5%—well below its 6.7% target.
So the economy probably isn’t going to grow by nearly enough in the rest of the year to make 2016 look great. The new Prime Minister, Nguyen Xuan Phuc—who succeeded Nguyen Tan Dung after he set an even more ambitious target of 7% earlier this year—even said it would be “hard to achieve” the necessary expansion in the second half of 2016, Business Insider reported.
But there are promising signs for Vietnam’s economy, according to a new research note from HSBC, despite today’s slow growth.
One of the biggest causes of Vietnam’s problems in 2016 has been a huge drought—the worst in three decades and caused in part by El Nino .
It’s dealt a major blow to the agricultural sector, which makes up 13% of the economy and experienced a 0.8% year-over-year drop in output. It’s also probably had an effect on consumer spending, as agricultural workers—nearly half of Vietnam’s workforce—have seen their incomes fall.
But, importantly, other sectors have strengthened as agriculture fell. According to HSBC, the manufacturing sector jumped 10% in the first half of 2016, and construction jumped almost 9%. And manufacturing has continued to expand after the second quarter: Output increased in July for the eighth straight month, although at the slowest rate in four months.
There’s also hope for Vietnam that the Trans-Pacific Partnership—a pact that aims to foster trade between 12 countries, including Vietnam—will pass. Both Hillary Clinton and Donald Trump oppose the deal, and it’s unclear if it will be ratified or not. But if it were to come to fruition, the World Bank estimates it would lift Vietnam’s GDP by 10% by 2030.
Meanwhile, in its global research, foreign-owned Standard Chartered Bank (in Vietnam) expects Vietnam’s economic growth to reach 6% in 2016 and 6.6% in 2017.
Construction activity and manufacturing strength are still important factors to help the country’s growth despite agricultural reduction.
The bank said in the context of global slow pace of growth, Vietnam is still one of attractive destinations for investment, and expects strong foreign direct investment inflows in 2016 as well, the research said.

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