IIP rate slips due to low oil extraction

At last week’s meeting on Vietnam’s socio-economic situation organized by the National Assembly’s Economic Committee, Deputy Minister of Planning and Investment Nguyen The Phuong said that local production had recovered slowly over the past two months, as it had been hit by a drop in the exploitation of crude oil and natural gas, and a lower-than-expected rise in the processing and manufacturing sector.

The Ministry of Planning and Investment (MPI) reported that the two-month index for industrial production (IIP) increased by just 6.6% against a 12% rise for the same period last year.

The lower IIP in this year’s first two months has been ascribed to a 2.5% on-year reduction in the exploitation of crude oil and natural gas. This stands in sharp contrast to the 9% climb in last year’s corresponding period.

Last year, the 47% slump in oil price made a US$3.4 billion dent in Vietnam’s export turnover, mostly from crude oil exports. The oil price averaged US$50 per barrel last year, and is currently sitting at about US$30 per barrel, which is believed by some to drop to as low as US$20 per barrel this year.

Additionally, so far in 2016, the processing and manufacturing industry-which contributes about 70% of industrial growth-grew 8.53% year-on-year, much lower than the 12% rise for the same period last year.

Deputy Minister Phuong attributed the industry’s lower growth rate to the many days off work as a result of the Tet holiday, which ceased operations in almost all industries.

“Actually, local production and confidence among firms is rising strongly,” Phuong said. “For example, in this year’s first two months, power production and distribution climbed 13% year-on-year.”

Many provinces and cities posted high on-year IIP growth for the first two months, including Quang Nam (65.5%), Thai Nguyen (29.9%), Haiphong (14.7%) and Can Tho (13.4%).

The less than impressive results for other key provinces include Danang (9.6%), Hai Duong (9.2%), Hanoi (8.5%), Dong Nai (8.4%) and Binh Duong (5.7%).

The MPI reported that nearly 14,000 new enterprises were established since the start of 2016, with a total registered capital of US$5.13 billion, up only 1% in the number of enterprises, but up 45.8% in capital.

The average registered capital of each enterprise is US$368,200, up 44.4% year-on-year.

Also, the number of enterprises resuming operations is over 7,400, up almost 70% year-on-year.

According to Nikkei, one of the most encouraging statistics in the latest data from the manufacturing purchasing managers’ index is the rise in the growth of new orders at the start of 2016, which moved up from 51.3 in December 2015 to 51.5 in January 2016. This indicates that local firms are still able to generate new business despite a challenging global environment.

FocusEconomics Consensus, which features economic forecasts from the world’s leading economists, predicted that investment in Vietnam would rise 9.6% in 2016. The firm also estimates that Vietnam’s industrial output will grow 10% in 2016, higher than last year’s 9.8%.