What is holding back growth in Vietnam?

Businessinsider news site commented that Vietnam will find it difficult to complete its ambitious economic growth target, partly due to prolonged drought.

The Vietnamese government set a GDP growth target of 6.7% for 2016. However, according to the latest statistics, this target was not achieved in the first two quarters of the year, so it will be difficult for Vietnam to achieve its ambitious economic growth target for the whole year.

Vietnam is one of the world's largest rice exporters and also a leader in robusta coffee production.

Agriculture declines

The estimated GDP growth rate of 5.6% in the second quarter has brought the year-to-date growth rate to 5.5%. In the same period in 2015, Vietnam's GDP growth rate was 6.3%, and the average growth rate for the whole year last year was 6.7%. Thus, with the modest figures for the first two quarters of 2016, the growth target for the whole year seems a bit far-fetched.

Credit Suisse recently lowered its growth forecast for Vietnam to 6% in 2016, from the previous forecast of 6.3%.

In addition, the Business Monitor International (BMI) is also not very optimistic about Vietnam's economic prospects this year. This agency believes that Vietnam's GDP growth in 2016 will be much lower than the 6.3% achieved last year, perhaps only reaching 5.9%.

One of the main reasons for the stagnant GDP is the “slow progress” in the agricultural sector. According to Bloomberg, the prolonged drought in Vietnam over the past 3 decades is one of the factors that has caused the economy to decline based on agriculture.

Vietnam's GDP growth chart with contributions from industry (light blue line), agriculture (dark blue line) and services (red line)

Vietnam is one of the world’s largest rice exporters and a leading producer of robusta coffee. As a result, harsh weather conditions have severely impacted Vietnam’s agricultural output, dragging down GDP growth.

According to BMI estimates, severe weather conditions have caused Vietnam about 681 million USD in damage.

The bright spots

However, Bloomberg news agency said that Vietnam's economic picture still has many bright spots, including tourism and manufacturing. These are the major driving forces for Vietnam's economy to grow.

Bloomberg commented that Vietnam's manufacturing industry has grown strongly in recent years, attracting the participation of many large corporations in the world, including the Korean electronics group Samsung with a chain of smartphone factories.

In the second quarter, the growth index in the manufacturing industry increased to 12% compared to 8% in the first quarter. Bloomberg quoted the assessment of the leader of the General Statistics Office of Vietnam that the output in the manufacturing industry will continue to increase and actively support the national economy in the last two quarters of this year.

Besides, the tourism industry also shows many positive signs and is considered a driving force for the country's economic growth.

BMI's report shows that in the first 6 months of 2016, the tourism industry achieved significant growth, with the number of international visitors soaring 21.3%, reaching 4.7 million people, bringing in revenue of over 9 billion USD.

Recently, Vietnam has applied a visa exemption program for some international visitors from Europe. This has helped the growth of the tourism industry to have a breakthrough, bringing large revenue to "follow-up" services such as retail, restaurants, hotels, etc.

To achieve the GDP growth target of 6.7% in 2016 and the following years, Businessinsider has proposed a number of conditions, with special attention paid to two key industries: manufacturing and tourism./.

According to VOV