2013-03-11 12:26:11 - Fast Market Research recommends "Vietnam Business Forecast Report Q2 2013" from Business Monitor International, now available

Core Views

Vietnam's real GDP growth accelerated from 5.1% year-on-year (yo- y) in Q312 to 5.4% in Q412, reinforcing our view that the economy is poised for a robust recovery in H113. We see scope for a robust rebound in private sector investment growth as lending rates decline over the coming months.

The latest figures published by the State Bank of Vietnam (SBV), which showed headline consumer price inflation (CPI) accelerating from 6.8% y-o-y in December to 7.1% in January, have fuelled concerns that inflationary pressures could intensify over the coming months. From our perspective, however, we believe that subdued credit growth and a benign outlook for food prices in H213, should keep inflation in check through the year. Accordingly, we reiterate

our view that the SBV will keep its policy rate on hold at 9.00% through 2013.


Full Report Details at
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We continue to view tax reforms as a crucial element in addressing the government's fiscal imbalances over the long run. Good progress on tax reforms could therefore, present upside risks to our forecasts for Vietnam's budget deficit to narrow from 5.0% of GDP in 2013 to just 0.9% by 2022.

Major Forecast Changes

We have upgraded our real GDP growth forecast from 6.5% to 7.0% for 2013.

We expect Vietnam to run a relatively balanced current account with a negligible deficit of just 0.1% of GDP in 2013.

Key Risks To Outlook

Downside Growth Risks From Rising Commodity Prices: Should commodity prices witness a strong rebound in 2013, we could see the central bank adopting a more hawkish stance on monetary policy. The risk of having to hike interest rates aggressively would present significant downside risks to economic growth.

Further Deterioration In External Demand: Despite multiple devaluations since late 2009, Vietnam's trade deficit has witnessed a steady improvement. However, should we fail to see a sustained improvement in the trade balance, we would not be surprised to see the Vietnamese dong coming under further selling pressures.

Partial Table of Contents:

Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
CPV To Face More Pressure For Democratic Reforms
- The Communist Party of Vietnam (CPV) is facing an uphill task in defending its authoritarian system of government amid growing pressure for democratic reforms. While pressure from international rights groups has failed to deter the CPV from clamping down on anti-government demonstrations in the past, we expect the CPV to soften its stance as the country seeks to pursue closer economic ties with its considerably more democratic trade partners going forward.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Key Political Challenges Over The Coming Decade
- Vietnam's biggest political question over the coming decade is whether one-party rule under the Communist Party of Vietnam will face growing calls for democratisation, as was the case in other major South East Asian countries. While our core scenario envisages the CPV transforming itself into a technocratic administration, it faces major economic challenges which if mismanaged could lead to widespread unrest.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Rate Cut A Boost To Efforts To Reignite Growth
- The State Bank of Vietnam (SBV)'s surprise decision to cut its policy rate by 100 basis points from 10.00% to 9.00% suggests that policymakers are under increasing pressure to stimulate economic growth in 2013. We believe that the latest move will help reinforce government efforts to boost private sector investment. Given that money supply growth remains considerably low by historical standards, we believe that the risks of re-igniting inflationary pressures remain manageable.
TABLE: ECONOMIC ACTIVITY
Monetary Policy
Inflation Uptick Not A Major Concern
- Despite the recent uptick in headline consumer price inflation (CPI), we continue to expect a benign outlook for inflation this year. We expect food price pressures to ease in H213, suggesting that inflationary pressures should, on the whole, remain benign over the coming quarters.
TABLE: MONETARY POLICY
Balance Of Payments
Improving Fundamentals Bode Well For Exchange Rate Stability
- We see increasing evidence that the recent improvement in Vietnam's current account dynamics will be sustained at least in the near term, and we forecast the spot rate to remain stable at around VND20,860/US$ over the coming months. Although we acknowledge that this structural improvement does present a bullish case for a steady appreciation in the Vietnamese dong, prevailing risks that external conditions could deteriorate further on the back of global economic headwinds compels us to maintain a neutral view on the spot rate.
TABLE: CURRENT ACCOUNT
Fiscal Policy
Tax Reforms To Top Fiscal Agenda
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Full Table of Contents is available at:
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