Vietnam - HSBC: Consumers, foreign investors remain cautious

HCMC - The impact of Vietnam’s high inflation last year still makes foreign investors and Vietnamese consumers keep their cautious attitude toward signs of improving macroeconomic conditions in this country, according to HSBC Global Research’s latest report.

“Even as prices are decelerating and inflation is expected to reach single digits by the end of 2012, people are likely to be cautious about how sustainable and stable this trend will be,” said the report on Vietnam’s 2012 outlook, obtained by the Daily on Monday.

The Government expected inflation to fall below 10% this year from 18.58% in 2011 and HSBC Global Research’s figures showed inflation was easing. However, some risks loom large, especially from imminent electricity rate hikes as well as an oil import tax increase from 0% to 4% in December last year.

“Although the downward trajectory is much needed, we believe it is unlikely to be enough to alter people’s caution behavior. Memories of 2011 are still fresh,” the report said.

In its latest report on rapid-growth markets released earlier this year, global provider of assurance, tax, transaction and advisory services Ernst & Young projected 2012 would be another year of above-target inflation for Vietnam and that Vietnam’s inflation would be below 10% in 2013.

HSBC Global Research commented macroeconomic conditions had stabilized significantly compared to early 2011 as a result of many moves from the Government and the State Bank of Vietnam (SBV). However, slower expected domestic demand and weaker exports in 2012 reflected the cautious sentiment of both investors and consumers.

According to the HSBC report, the SBV is likely to lower rates towards the end of the first quarter of 2012 but consumers and investors will need a lot of convincing to return to the spending levels of pre-2009.

“Even with the expected easing of policy interest rates in 2012, consumers and investors are unlikely to accelerate spending significantly.”

HSBC Global Research explained the macroeconomic challenges, including inflation, had left “a lasting impression” on consumers and international investors.

“As a result, investors will likely be more cautious than they were last year and operate on a ‘wait-and-see’ basis to reflect their skepticism and belief that effective structural reforms will take time.”

HSBC Global Research projected private consumption in Vietnam to decelerate to 4.2% in 2012 from 4.3% in 2011. It suggested reforms were needed to change the expectations of consumers and investors, as short-term fixes were no longer enough.

Remaining internal issues made HSBC experts expect Vietnam’s economy to decelerate to 5.7% this year from nearly 5.9% in 2011.

“Both weak global economic conditions and cautious sentiment in Vietnam should keep growth below its long-term average,” the report said.

Vietnam’s both exports and imports would decelerate this year, as projected by the HSBC Global Research, due to weaker external demand, prompted by a slowdown in the United States and China and a recession in Europe, as well as slower domestic demand for imports.

“Contained commodity prices should also bring down the value of Vietnam’s major exports. We expect the value of exports to decelerate to 24% year-on-year in 2012 from 34.2% in 2011. Similarly, import values will likely slow to 22% in 2012 from 25.9% in 2011, in our view,” the report said.

Whether the easing of interest rates in the future will spur consumption would largely depend on the Government’s commitment to reform. “For Vietnam to return to its long-term average growth rate of 7%-plus, a concerted effort to reform the economy is required to both increase investment efficiency, as well as reset the expectations of both Vietnamese and foreign investors,” the report said.

Binh Nguyen - The Saigon Times Daily

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