Vietnam - World Bank predicts Vietnam's 6.1 per cent growth in 2012

The World Bank has predicted that Vietnam's gross domestic product will increase 6.1 per cent next year in its East Asia and Pacific Economic Update released on November 22.

>> Curtain drops on budget

It said the real GDP growth rate in the first half of 2011 was 5.6 per cent, and is expected to be around 5.8 per cent for the whole year.

Monthly inflation slowed to around 1 per cent since June 2011 as stabilisation measures began to take effect.

However, inflation is unlikely to decline substantially in the near future because of factors such as commodity prices, minimum wage adjustments, possible hikes in electricity tariffs and market expectation of a more accommodating credit policy during the last quarter of the year.

Trade deficit is expected to improve in 2011. Import growth has slowed as a result of stabilisation policies whereas export growth has remained robust helped by high commodity prices. Export earnings grew 33.7 per cent and the import bill increased 25.4 per cent in the first eight months of this year.

High commodity prices have helped the export value of key agricultural commodities such as rice, coffee, cashew, pepper, tea, vegetables and rubber to grow by nearly 40 per cent. At the same time, crude oil exports have surged by 52 per cent in value despite a volume increase of only 5 per cent.

The report said a narrowing of the trade deficit and significant purchase of foreign currencies by the State Bank of Vietnam have enabled a build-up of foreign reserves to around two months of imports by the end of July. This could help reduce the risk of immediate balance payment difficulties as well as ease depreciation pressures on the Vietnamese dong. The current account deficit is estimated to be less than 4 per cent of GDP.

However, it said the tightening of monetary policies is starting to put pressure on the banking sector. In response to stricter liquidity conditions since late 2010, smaller commercial banks have offered high deposit rates of up to 18 per cent to gain liquidity despite central bank guidance in keeping deposit rates at 14 per cent or below, triggering fierce competition among banks. As there are no prescribed limits on lending rates, banks have raised them to as much as 22-27 per cent.

With economic slowing down, the pressure on borrowers is expected to grow in the coming months, resulting in some deterioration of the quality of bank sector assets in 2011-12. While the central bank has supported weaker banks through greater liquidity, it has hinted that some consolidation may be needed if the weaker banks do not perform up to industry standards.

The World Bank also predicted that CPI will rise 10.5 per cent with trade deficit reaching around $8 billion.

According to the report, growth is still strong in developing East Asia, but continues to moderate mainly due to weakening external demand, underscoring the need for governments to refocus on reforms to increase domestic demand and productivity.

The report, issued biannually, projected that amid uncertainties in Europe and a global growth slowdown, real GDP in developing East Asia will increase by 8.2 per cent in 2011 (4.7 per cent excluding China) and by 7.8 per cent in 2012. Domestic demand in middle-income countries was the largest contributor to growth in the region, although it is easing driven by the normalisation of fiscal and monetary policies.

VIR - VNA

Business & Investment Opportunities

YourVietnamExpert is a division of Saigon Business Corporation Pte Ltd, Incorporated in Singapore since 1994. As Your Business Companion, we propose a range of services in Consulting, Investment and Management, focusing three main economic sectors: International PR; Healthcare & Wellness;and Tourism & Hospitality. We also propose Higher Education, as a bridge between educational structures and industries, by supporting international programs. Sign up with twitter to get news updates with @SaigonBusinessC. Thanks.