Thursday, April 23, 2009

Standard Chartered: Vietnam makes it a different year

08:28' 22/04/2009 (GMT+7)

VietNamNet Bridge - That the Vietnamese economy is showing several positive signs was what Standard Chartered revealed in its latest report entitled “Vietnam-what a difference a year makes”.

In the report released by the bank in mid-April, the Head of the Southeast Asia Research Department, Tai Hui, said that the trade balance in Vietnam is steadily swinging from a deficit to a surplus.

For the first quarter of 2009, Vietnam ran a trade surplus of 1.6 billion USD, compared to a deficit of 8.4 billion USD in the same period last year.

“This was the result of a collapse in imports, which was partly driven by a rapid decline in commodity prices, in particular of steel and petroleum products,” Tai Hui added.

He stated that when Vietnam’s first oil refinery starts production later this year, the country should be better protected from rising oil prices.

Another positive sign came with exports increasing by 25.9 percent in February and 12.9 percent in March after shrinking for three months between November 2008 and January 2009, said Hui.

Inflation remains on a downward trend, dropping to 11.2 percent in March, the lowest since December 2007, after peaking in August 2008 at 28.3 percent.

The senior economic expert forecasted that inflation could drop to a single digit by the second half of 2009 if oil and food prices remain stable.

“The gloomy global sentiment has yet to be seen in local consumption as domestic retail sales have maintained a decent momentum in recent months. Even after adjusting for inflation, real retail sales have been broadly expanding,” Hui said.

“Surprisingly, the global economic slowdown has yet to hurt foreign direct investment (FDI),” emphasised the economist.

Official figures show that the country attracted 6 billion USD of pledged FDI in the first quarter of 2009, slightly higher than 5.2 billion USD recorded in the same period last year.

In his analysis, Hui attributed the State Bank of Vietnam’s (SBV) prompt monetary policy for the U-turn in the economy 12 months ago.

Trade deficits reached up to 9 percent of gross domestic product in the first quarter of 2008 and inflation culminated at 28.3 percent in August of that year.

In response to capital outflows and rising inflation, the SBV raised its base rate aggressively in 2008 to 14 percent by the end of the second quarter of that year from 8-7.5 percent at the start of the quarter.

By the third quarter of 2008, the trade deficit seemed to have been brought under control and the increase of the consumer price index had slowed down.

In this situation, the Government was quick to reverse its monetary tightening, reducing the base rate to 7 percent in early April 2009 from 14 percent in September 2008. Meanwhile, the authorities also permitted the VND to fall further against the USD. Since the end of September 2008, the VND has dropped by 7 percent.

The Government has announced various fiscal measures to support economic growth, including interest subsidies and tax deferrals.

In the report, Standard Chartered remained constructive in its medium-term outlook for Vietnam while 2009 is still a year of great challenges for the domestic and regional economy.

“Several structural factors will drive the country’s development, some of which will still be at work even as growth in the advanced economies weakens”, Hui said.

Standard Chartered experts forecast that Vietnam’s purchasing power will double in the next 6-7 years, after taking into account the growth of other Asian economies.

Vietnam, due to its stable political environment and low production costs, is often regarded by Asian businesses as a good alternative, said the report.

“The experiences of other Asian economies often serve as an example to policy makers in Vietnam as they determine the most appropriate approach to facilitating growth. The domestic market turmoil in the second and in third quarter of 2008, as well as the global financial crisis, demonstrates that the authorities are quick to learn and adapt, in our view,” the report made it clear.

Standard Chartered retained its previous forecasts of the Vietnamese economy growth at 4.2 percent in 2009 and 5 percent in 2010.

“While this may be low from a domestic standpoint, it is a respectable performance from a regional perspective,” concluded Hui.