Mar 17, 2013

Vietnam - Economic outlook gloomy

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VietNamNet Bridge – Vietnam’s economic outlook is not so bright since fundamental shortcomings have not been remedied and economic restructuring has not yet kicked off, said the Economic Committee of the National Assembly (NA).

In its eighth macroeconomic newsletter, the committee said: “Vietnam’s economy will need some time to enter into a new orbit that is more balanced and sustainable.”

After a long period of high growth, domestic demand has been shrinking. From 10% of GDP in 2010, local consumption dropped to 4.4% in 2011 and below 2% last year, said the committee.

Due to high capital cost and sluggish demand, fixed asset accumulation of enterprises has also declined drastically, from 4.5% in 1990 to 1.6% in 1999 and minus 10.4% in 2011. Economic growth in those years was 5.09%, 4.77% and 5.89% respectively.

Public spending has also fallen significantly, from 12.3% of GDP in 2010 to 7.2% in 2011 and less than 6% in 2012.

Given the aforesaid factors, plus the global economic woes, it will be long until aggregate demand is buoyant again.

Therefore, Vietnam’s economic growth will slow down in the medium term, said the committee.

Risk of inflation remains high given the cost-push factors and more importantly, structural problems.

Thus, it will take time to bring the economy into a more sustainable orbit. There needs to be a medium-term vision for this adjustment process, instead of only paying too much attention to short-term fluctuations, said the committee.

The NA Economic Committee said it would be difficult to handle bad debt and the property market.

Property value will considerably shrink, while debt will continue to balloon. This situation will push quite a few companies to the verge of insolvency, adversely affect the involved banks and thus threaten the safety of the banking system.

Widespread speculation has distorted market signals, arousing poorly-judged expectations that land and property prices only pick up.

Realty firms are awaiting the State rescue. However, given the huge property bad debt, the State cannot come to their rescue.

“The Government should send a clear message that there will be no rescue for investors in the mid- and high-end property segments; their fate will be decided by the market,” said Nguyen Tri Dung, national manager of the economic policy project of the NA economic committee.

However, he supported the measures currently adopted by the Government to help low-income homebuyers.

Sharing the view of the NA economic committee, Nguyen Dinh Cung, vice president of the Central Institute for Economic Management, said the property market should not be rescued.

“Investors are to blame for the property bubble. If they were rescued now, they would get back to the old way of doing business,” he told the Daily.

The most important thing to do at present is to stabilize the macro-economy in order to create a foundation for implementation of the economic restructuring plan recently passed by the Government.

“Stabilizing the macro-economy and starting economic reform as committed is the basis for converting the current growth model of Vietnam into a more efficient one. But this will take time,” he said.

Source: SGT

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