Vietnam - Vietnam should prepare for deeper recession due to European crisis

Developing countries including Vietnam should prepare for deeper recession as Europe’s public debts and weak growth of some newly emerging economies are making the global growth prospect fade, according to World Bank’s Global Economic Prospects report announced on January 18.

Compared with June 2011, WB in this report lowered the growth estimates for 2012 of developing countries from 6.2% to 5.4%. For high income countries, the growth forecast also was reduced from 2.7% to 1.4%.

Economic growth of Cambodia, Laos and Vietnam was reported to decline from 6.8% in 2010 to 5.9% in 2011. However, the predicted growth of Cambodia and Vietnam will be better in 2012-2013 thanks to stable spending and macroeconomic improvement, less impact from the instabilities of high-income countries.

Vietnam’s financial point of view remains suitable with the situation, citing the report and the monetary policy tightening to curb high inflation help reduce the macroeconomic upheavals of Vietnam. The country’s export sometimes reached two-digit growth. GDP of Southeast Asia countries is expected to surge 5.8% in 2012 and 7.1% in 2013. GDP of the country group including Cambodia, Laos and Vietnam is estimated to grow 6.8% within this year.

World Bank said that a decrease in commodity price also helped ease inflation in most developing countries. In some recent months, despite global food price fell 14% against February 2011, ensuring food security for the poorest in the countries including Africa still is the main concern. Prices in developing markets, especially Argentina, Brazil, Egypt, India, Serbia, Bulgaria, Ukraine and Vietnam, are on decline.

However, the position of Vietnam, and medium and below medium-income countries in eastern Asia, Asia Pacific like Laos and Cambodia will fall further in comparison with regional economies due to they have small room to change policies and small reserve to prevent financial upheaval.

Regardless of the regional export growth (including China), exporters of Thailand, Philippines, Malaysia, Indonesia and Vietnam are vulnerable by import demand of OECD economies.

Meanwhile, inflation pressure in most regions will be eased but stronger in Europe, Middle and South Asia (including Vietnam), World Bank forecasted.

Developing countries have time to assess their gaps and prepare for bigger shocks, Justin Yifu Lin—Chief Economist cum Senior Vice Chairman on Economic Development at World Bank said.

Hans Timmer, GEP Project Director of World Bank said that developing economies should foresee budget deficit, give priority for spending on social security, infrastructure and launch tough examination on domestic banks.

In addition, public debts of developing countries made capital inflow to developing countries fall $170 billion in the last half of 2011.

“Impacts of the crisis will not exclude any country. Growth rate of developing and developed countries will decrease equally or even more sharply than the period of 2008-2009, Andrew Burn, Global Macroeconomy Director cum Head of the research group at World Bank warned.

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