Saturday, December 26, 2009

Vietnam Today

Vietnam Today

Economic Forecast

The report said that in 2010, the world’s economy will continue upward. The International Monetary Fund (IMF) has predicted a 3.1 percent growth rate of the world’s economy, higher than the minus 1.1 percent growth rate in 2009, but still much lower than the five percent obtained in 2006 and 2007, and 4.9 and 4.5 percent in 2004 and 2005.

IMF forecasts that world trade will increase by 2.5 percent (it decreased by 11.9 percent in 2009).

Rising inflation: Prices of other materials are also forecast to increase in 2010 due to demand increase from recovering economies and the currency value decrease

Vietnam’s economy will grow 5.1% in 2009 and 8.2% next year, Goldman Sachs said in a report December 3.

From Asian Development Bank (ADB)
In its outlook released on December 15, Asian Development Bank (ADB) stated that Vietnam would continue retaining its stable economic growth rate of 6.5 percent in 2010, which is considered at high level in Southeast Asian region. However, ADB also warned that Vietnam's inflation rate may increase sharply compared to other nations in the region because the 2010 credit level will stay at higher level than that of 2009.

From Vietnam 's Ministry of Finance, Vietnam will face four difficulties

Firstly, relating to export, while having forecast higher export turnover for 2010, the ministry still warns exports may not enjoy much growth. Vietnam’s main export items are farm produce and raw products with low added value, which makes it difficult for the country to increase export revenue. Inflation in import countries and the world’s low demand will also be a hindrance to Vietnam’s exports.

Secondly, though foreign investment in Vietnam will increase slowly, it will still be difficult to lure foreign capital, because big companies are just beginning to recover, which requires much capital.

Thirdly, the implementation of economic stimulus packages in other countries will certainly lead to budget deficits and a higher risk of inflation. In particular this will lead to cost increases for many kinds of materials used for production in Vietnam.

Fourthly, the fluctuating gold market and the unstable monetary, stock and foreign currency markets may badly affect the national economy.

Extract From IMF(Consultative Group Meeting for Vietnam,Dec 2009)
Vietnam is weathering the global crisis better than many other countries. After a sharp slowdown in the first quarter, economic activity picked up in the second and third quarters, and we now project real GDP growth at 5¼ percent in 2009, which would be among the highest in the region this year. While the resilience of the private sector appears to have been the major driving force, the government’s stimulus program also played a role, as the combination of monetary policy easing and a sizable fiscal package has boosted domestic demand, underpinning a recovery in industrial production and maintaining robust retail sales.

The stimulus program has come with a cost, as risks to macroeconomic stability—which had been brought under control in late 2008—are once again rising. The most immediate issue is the pressure on the balance of payments. The easing of monetary and fiscal policy under the stimulus program has boosted imports, contributing to a return of significant trade deficits ($3½ billion in the third quarter). Moreover, residents have shifted their portfolios toward gold and other foreign currency assets. As a result, the dong has been under depreciation pressure this year, with parallel market exchange rates recently trading up to 10 percent outside of the official band. As the authorities have defended the dong, gross international reserves have fallen to below 2½ months of imports. Access to foreign exchange has been difficult, imposing costs on enterprises and adversely affecting investor sentiment toward Vietnam more generally.

Economic projections for 2010 reflect these challenges:

• We expect growth to rise to 6 percent, on the back of a gradual recovery in exports and FDI.

• Inflation is likely to rise to double digits from around 7 percent in 2009, as the recent sharp increase in credit growth and higher commodity prices feed into domestic prices.

• The outlook for the balance of payments is the most challenging. Our projections assume that the government is able to narrow the current account deficit to 7½ percent of GDP from an estimated 8¾ percent in 2009 and to reverse the shift in resident portfolios toward foreign currency assets. If FDI and official development assistance flows remain firm, this would allow a modest recovery of gross international reserves in 2010.

The downside risk
There are downside risks to this outlook associated with the uncertainty surrounding the global economic recovery. However, the greater risk lies with the re-emergence of macroeconomic instability similar to that encountered in 2008, constraining the scope for maintaining stimulus programs. One of the key lessons from that period was that timely policy adjustments help avoid the need for more aggressive and potentially disruptive policy actions later.


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