Industrial GDP in the fourth quarter of 2019 increased by only 7.92%, much lower than that of the third quarter (10.42%) and the first 9 months of 2019 (9.56%).

Growth of metal ore mining cannot make up for the whole mining industry

Growth of the mining industry decreased by 0.92% in the fourth quarter of 2019.

• Crude oil and natural gas exploitation decreased by 3.6%, which was the main reason.
• Oil production experienced a continuous decline as the newly discovered fields were
  • small,
  • near the border, and
  • operating conditions were complicated and costly.
• Coal mining only increased by 8.2% in the fourth quarter, much lower than the third quarter (20.5%), which is explained by seasonality as the hot weather was over and hydropower production increased.
• The positive side of the mining industry is metal ore mining. This sector saw strong growth in the fourth quarter (up 47.2%). However, because the proportion of metal ore mining is quite small, the above increase is not enough to compensate for the loss of oil and gas.

The manufacturing industry continues to show heavy dependence on FDI enterprises

The growth rate of the manufacturing and processing industry decreased to 10.86% in the fourth quarter, which is the lowest level for many quarters. The decline in manufacturing is obviously seen in almost all sectors.

• Specifically, production of coke and refined oil decreased by 16%. Fifty-day maintenance of the Nghi Son Refinery in the fourth quarter sharply reduced the industry growth. By 2020, industry growth will also be low because it is difficult to increase the capacity of Dung Quat and Nghi Son plants.
• Meanwhile, metal production increased by only 9.3%, less than 1/3 of the average increase in the first 3 quarters. The market for domestic consumption and export is facing difficulties, and Formosa‘s output declines, leading to the slowing growth of the whole industry.
• Production of electronics was also unpleasant when its growth rate only increased by 5.1%, the lowest level in 33 months. The electronic manufacturing industry will not be satisfactory when the export market for phones is saturated. Imports of phones and components continued to decline, with a 14% decrease in December, which is a negative sign for the production of phones and electronics in the first period of 2020.
• Production of motor vehicles increased by 2.8%. The encroachment of imported cars and weak demand has caused the domestic automobile industry to slow down.
• Garment is decelerating alarmingly. In the fourth quarter of 2019, this sector only increased by 3.7%. The trade war has had a negative (instead of positive as expected) impact on the textile industry from two aspects.
  • Firstly, global textile and apparel aggregate demand increased slowly – only 3.3% instead of 7.4% as in 2018.
  • Secondly, short-term business plan and defensive strategy against unpredictable changes in international trade policy has caused difficulties in optimizing plans and costs for textile enterprises

According to SSI, slowing growth of industries with large proportion (electronics products, motor vehicles, textiles) and industries with very high growth rate (refined petroleum, metal) has affected the whole manufacturing and processing industry. The positive thing is that most other industries (textile, leather production, wood processing, paper, rubber products, and plastics) still experience stable growth.

The low growth in the fourth quarter of the manufacturing industry shows the heavy dependence on a few large FDI enterprises such as Samsung (phones), Formosa (steel), Nghi Son petrochemical refinery (refined oil), which brings a lot of risks for growth.

The decline in the production and business activities of these FDI enterprises is mainly due to objective reason which is the consumption market, but the subjective reason of changing investment strategy could not be ignored. Therefore, Vietnam’s economic planning and forecasting have also become complicated.

• With phones and petrochemical refining, policy interventions will be ineffective. However, these industries can be supported in many ways.
  • In addition to Formosa project, in 2020, Hoa Phat Dung Quat steel project will come into operation, so it is necessary to take protective measures against Chinese steel or promote trade with ASEAN countries (the main market of Vietnam’s export steel).
  • Disbursement of accelerated public investment will also increase demand for steel and other construction materials.
• GDP of electricity and gas production and distribution in the fourth quarter had a low growth rate of only 7.6%. In addition to weather and seasonality, demand has also affected the industry’s production. 

Content source: Vietnam Credit. (2020) Vietnam’s industrial growth is slowing down. Available from: https://vietnamcredit.com.vn/news/vietnams-industrial-growth-is-slowing-down_13656 [Accessed 11 January, 2020]