Photo: VGP

Despite slightly slow growth in the past six months, the national economy has yet to slip into recession, according to Vu Duc Dam, Minister and Chairman of the Government Office.

An economy plunges into recession only when its growth is negative in two consecutive quarters, but that is not the case in Vietnam, Dam told the media in Hanoi on August 5.

He quoted statistics as saying Vietnam has recorded positive growth in the past two quarters, though it was slower than in previous years, and even relatively higher than in many other countries.

Slightly low growth rates do not mean that the national economy is in recession, Dam said.

The Minister also played down public concerns about deflation in June and July, saying ‘core’ inflation remained positive in the past two months if food and energy which rely heavily on outside factors, not financial and monetary policies, were not included in the price index calculations.

At the monthly Cabinet meeting for July, the Government forecast that the consumer price index (CPI) for August would continue to be negative if energy and food were added to the calculations.

Without taking ‘special’ management measures, the CPI is likely to be kept at 7 percent by the year’s end, Dam said.

“All factors should be taken into account to ensure we bring inflation under control, and maintain a reasonable economic growth rate. It’s worth remembering that most developing economies have positive inflation rates, but 7 percent is relative high.”

He further explained that in an economy like Vietnam which depends heavily on bank loans, the banking system should have a plentiful source of capital and offer stable and low interest rates. This means inflation should be low to maintain positive deposit rates.

An inflation rate of 7 percent or lower is ‘necessary’ for the macroeconomy to stabilise in the long term and live up to the expectations of the Government, business community and general public, said Dam.

The minister admitted that local businesses have been encountering numerous difficulties as most of them are small scale and not highly competitive. The country’s impressive recent 20 percent growth in exports was largely generated by foreign invested businesses, while State-owned businesses contributed a more modest percentage.

“Although businesses are facing a range of difficulties, now is a good time for us to restructure the economy to make the macroeconomy stable in the coming years,” the Minister stressed.

“If we contain inflation, interest rates will go down, business barriers will be removed, and old bad debts will be settled. When public investment is accelerated in the coming months, business debts will be partly repaid, making it easier for businesses to access new loans at acceptable rates. This is what must be done in the coming years.”/.