VZCZCXRO6165
PP RUEHCHI RUEHDT RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHNH RUEHPB
DE RUEHHI #0037/01 0140351
ZNR UUUUU ZZH
P 140351Z JAN 09
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 9009
INFO RUEHHM/AMCONSUL HO CHI MINH 5476
RUEHGP/AMEMBASSY SINGAPORE 2733
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 02 HANOI 000037 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS MBROWN 
SINGAPORE FOR TREASURY 
TREASURY FOR SCHUN 
USTR FOR DBISBEE 
 
E.O. 12958: N/A 
TAGS: EINV ECON VM ETRD
 
SUBJECT: VIETNAM'S ECONOMY 2008: SLOWER ECONOMIC GROWTH, RECORD FDI, 
AND HIGH INFLATION 
 
HANOI 00000037  001.2 OF 002 
 
 
¶1.  (U) Summary: Vietnam's Gross Domestic Product (GDP) growth 
slowed to 6.2 percent in 2008, the lowest since 2000.  Inflation 
rose sharply, with the 2008 average monthly Consumer Price Index 
(CPI) rising 23 percent compared to the 2007 monthly average, though 
price rises slowed toward the end of the year.  Exports remained 
strong at USD 62.9 billion, up 29.5 percent from 2007.  Imports, 
however, continued to surpass exports at USD 80.4 billion, which 
resulted in a record trade deficit of USD 17.5 billion.  End 
Summary. 
 
LOWEST GROWTH RATE SINCE 2000 
----------------------------- 
 
¶2. (U) The General Statistics Office (GSO) of Vietnam released its 
2008 economic figures last week.  The numbers showed the early 
impact of the global economic downturn on Vietnam's economy. 
Vietnam's GDP growth rate slowed to 6.2 percent in 2008 from last 
year's 8.5 percent.  This rate is the lowest since 2000 and falls 
below Vietnam's target of 7 percent.  Total GDP was VND 1,478,695 
billion, or approximately USD 88 billion. 
 
SERVICES SECTOR LEADS GDP GROWTH 
-------------------------------- 
 
¶3. (U) The services sector grew 7.2 percent, lower than the 8.7 
percent growth in 2007, but for the first time, was the biggest 
contributor (2.9 percentage points, or almost half of Vietnam's 
overall 6.2 percent GDP growth rate).  In years prior, industry and 
construction have been the lead contributors to GDP growth.  Within 
the services sector, the collective group of transportation, post 
and telecommunications, and tourism services showed the highest 
growth, up 13.8 percent compared to 10.4 percent last year.  Other 
service sectors reported lower growth rates, including hotels and 
restaurants (up 8.5 percent in 2008 versus 12.7 percent in 2007), 
and banking, insurance and financial services (up 6.6 percent 
compared to 8.8 percent last year). 
 
¶4. (U) Growth in the industry and construction sectors slowed to 6.3 
percent from 10.6 percent last year, contributing 2.6 percentage 
points to the overall GDP growth rate.  This was mainly due to a 3.8 
percent decrease in extraction industries (mostly crude oil). 
Private sector growth in this sector (the only sector where GSO 
measures private versus public activity) slowed to 18.8 percent, 
down from 21 percent in 2007, but continued to be the growth driver. 
 In contrast, the state sector remained the slower performer with 
only 4 percent growth this year compared with 10.3 percent last 
year.  In value terms, foreign invested enterprises (FIEs) grew 18.6 
percent and accounted for 40 percent of total industrial output. 
 
¶5. (U) The agriculture, forestry, and fishery sectors achieved 
growth of 3.8 percent in 2008, up from 3.4 percent in 2007, thereby 
contributing 0.7 percentage points to GDP growth.  This was largely 
attributable to successful rice crops.  Total rice outputs increased 
by 2.7 million tons (7.5 percent) over 2007, the largest increase in 
the last decade.  Rice cultivation area expanded by over 200,000 
hectares and rice productivity rose by 0.23 tons per hectare. 
 
 
 
FOREIGN DIRECT INVESTMENT COMMITMENTS INCREASE 
--------------------------------------------- - 
 
¶6. (U) In 2008 Vietnam attracted the highest level of FDI 
commitments since opening its economy in 1987, with USD 60.3 billion 
in new registered capital, 3.4 times higher than that of 2007 (USD 
17.8 billion).  (Note:  Actual FDI disbursements may be considerably 
less than registered FDI.)  In addition, USD 3.7 billion was added 
to 311 existing projects, making up a total of USD 64 billion new 
and additional FDI committed to Vietnam in 2008.  FDI disbursement 
also increased with USD 11.5 billion actually implemented, a 43.2 
percent increase over the 2007 level of USD 8 billion but still only 
18 percent of committed FDI levels. 
 
¶7. (U) Foreign Invested Enterprises (FIEs) posted total revenue of 
USD 50.5 billion, up 24.4 percent year-on-year, and earned USD 24.5 
billion from exports (up 23.7 percent from 2007).  This accounted 
for 40 percent of Vietnam's total exports (see below).  FIEs paid 
USD 1.9 billion in taxes, a 25.8 percent increase over 2007.  FIEs 
also created 200,000 new jobs in the domestic labor market. 
 
HANOI 00000037  002.2 OF 002 
 
 
 
DOMESTIC CONSUMPTION SLOWS 
-------------------------- 
 
¶8. (U) Total retail sales and services revenue, about USD 57 
billion, rose 31 percent over the 2007 level, mainly due to high 
consumer prices.  Net retail sales revenue went up by only 6.5 
percent in 2008.  (Note: Despite numerous sales and promotion 
campaigns launched before Tet, Vietnam's busiest retail season, 
retail sales reportedly remain slow in early 2009.) 
 
 
EXPORTS START DECLINE, TRADE DEFICIT HIGH 
----------------------------------------- 
 
¶9. (U) Vietnam earned USD 62.9 billion from exports, up 29.5 percent 
over 2007.  Higher world commodity prices were an important 
contributing factor.  For example, crude oil, Vietnam's largest 
export, was down 7.7 percent in volume but up 23.1 percent in value 
thanks to higher export prices in the middle of the year.  The 
United States remains Vietnam's largest export market, buying USD 
11.6 billion in goods, up 14.5 percent from 2007 and accounting for 
18 percent of Vietnam's total exports in 2008.  Due to sluggish 
overseas demand, Vietnam's overall exports started falling by 
mid-year, from USD 6.5 billion in July, to USD 6.1 billion in 
August, USD 5.8 billion in September, USD 5.1 billion in October, 
and USD 4.2 billion in November.  In December, exports recovered 
slightly to USD 4.9 billion due to higher export volume of crude 
oil, rice and apparel. 
 
¶10. (U) Vietnam's imports rose by 28.3 percent to USD 80.4 billion 
in 2008.  Imports slowed starting in August but continued to outpace 
exports.  Vietnam had a very large trade deficit of USD 17.5 billion 
in 2008, equivalent to approximately 20 percent of its GDP (up from 
17 percent in 2007). 
 
INFLATION HIGH BUT UNDER CONTROL 
-------------------------------- 
 
¶11. (U) The average monthly consumer price index (CPI) increased by 
23 percent in 2008 compared to the monthly average CPI of 2007, the 
largest increase in the last ten years.  Average prices of all goods 
and services in the price basket went up, but food (up 49 percent) 
was the major driver of increasing CPI, followed by average prices 
for houses and building materials (up 20.5 percent).  Average prices 
of other goods and services rose by 4.2 to 16 percent. 
 
¶12. (U) The GOV's tightened monetary policy and its 8 step plan to 
fight inflation began to take effect late in the year.  The CPI fell 
by 0.2 percent compared to the previous month in October, 0.8 
percent in November and 0.7 percent in December.  With the world 
commodities prices forecasted to decline, the GVN predicts that 
inflation will fall below 10 percent in 2009. 
 
¶13. (U) Comment: Vietnam has clearly begun to feel the effects of 
the global economic downturn.  The GVN will have to continue to 
closely monitor the balance of trade, as exports will likely 
continue to fall in 2009.  A large trade deficit coupled with slow 
FDI disbursement could put pressure on the country's external 
account.  End comment. 
 
¶14.  This cable was coordinated with ConGen HCMC. 
 
MICHALAK