2013-01-01 02:59:54 - Vietnam Business Forecast Report Q4 2012 - a new country guide report on companiesandmarkets.com

Data suggests that economic activity will continue to moderate, and we believe that uncertainties over unemployment and corporate earnings will prompt households and businesses to cut back on spending. However, the central bank´s rate cuts will have a significant impact on gross fixed capital formation growth in 2013. Accordingly, we have revised our real GDP growth forecast upward, from 6.5% to 7.0% for 2013. Despite two consecutive months of contraction in headline consumer price inflation (CPI), which have fuelled fears of a deflationary spiral in Vietnam, we believe that the State Bank of Vietnam (SBV) will refrain from introducing further rate cuts in 2012.

We believe that efforts to reduce inventory levels will begin to wane and that prices will stabilise

 

 

towards the end of the year. The Vietnamese government´s decision to advance VND30trn (US$1.4bn) in capital expenditure, which was originally allocated for 2013, will have only a moderate impact on the fiscal budget. We do not foresee any difficulties in the government´s ability to finance the planned increase in spending. However, we do see a need to boost efforts in order to spur private sector participation in government-led investment projects over the coming years.

Major Forecast Changes

We have upgraded our real GDP growth forecast from 6.5% to 7.0% for 2013. We see increasing evidence that total public expenditure will exceed the government´s allocated budget in 2012, resulting in budget deficits of 5.2% and 5.3% of GDP in 2012 and 2013, respectively.

Key Risks To Outlook

Downside Growth Risks From Rising Commodity Prices: Should commodity prices witness a strong rebound, we could see the central bank adopting a more hawkish stance on monetary policy. This could 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.

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