2016 macro review


2016, the first year in the 5-year plan, was indeed a tumultuous year for Vietnam. It headlined by Brexit, a Trump presidency, a tempering Yuan, and the US Fed rate hike which collectively triggered outflows from emerging markets. No one expected Vietnam would fluidly transition in an election year. There is a multitude of unforeseen factors, among which included El Nino, the environmental scandal at the Formosa steel factory in Central Vietnam and the Samsung Note 7 recall. That is the main reason for the economic growth is only 6.21% YoY, lower than the target set at the beginning of the year (6.7% YoY). However, the bright spot in 2016 lies in the fact that the new government has quickly built up confidence, taking concrete and clear steps in stabilizing the macro economy and helping it to gradually recover in the second half of the year. In particular, a number of pro-growth measures were instituted, including i) lowering interest rates (both deposit and lending rates) in the second half of 2016 (especially from the 4th quarter); (ii) accelerating SOEs reform by effectively relaxing foreign ownership limit, shortening the IPO and listing gap, and completing divestments of a multitude of businesses, even if they were profitable, and (3) implementing administrative measure reforms to bring the business environment of Vietnam closer to ASEAN-4.


In 2016, many positive factors have been in line with our expectation, including i) impressive manufacturing growth (at 11.9% YoY), ii) rising FDI disbursement and iii) tamed inflation (CPI averaged 2.66% YoY, of which core inflation remained below 2%).




However, there are still many unforeseeable negative factors in 2016. Dormant mining and agriculture sectors inhibited GDP growth. If we were to exclude the mining sector, the rest of the economy grew at 7.14% YoY (much higher than last year’s level of 6.7%). In the context of lower commodity prices, a dormant mining sector would not have overburden the economy.



Consumption growth has been lower than expected, especially in rural areas. Final consumption growth totaled 7.32% YoY as compared with 2015’s level of 9.12% while real retail sales increased 7.8% as compared with 2015 level of 8.5%.