Recently, Asian Development Bank (ADB) has released the Asia Development Outlook 2012 (ADO) with anticipation of Vietnam’s economic prospects on the first quarter’ performance.
Accordingly, average inflation could plunge to two digits this year as long as policies remain tough enough. However, core inflation that excludes energy and food prices could hardly ease. Inflation is projected to jump to 11.5pct for the following year due to economic growth, likely soaring global food prices and local increased electricity and fuel prices.
In the meantime, GDP is forecast to grow 5.7pct this year and 6.2pct for next year thanks to brighter outlook for global trade and investment as well as potential continued monetary loosening.
Yet, GDP rose 4.0pct in the first quarter of this year in comparison with 6.1pct in the last quarter of 2011. Industrial production grew 4.1pct year-on-year and credit growth fell by 2.5pct in the first two months. On the contrary to widespread lacklustre economic activities, import volume hiked 7pct in quarter 1.
In addition, this year’s individual spending could be significantly bolstered by inflation relaxing. It is very likely that investment would hardly be bustling in the context of financial sector’s unstable health. Public spending is expected to remain unchanged and export turnover could slow down versus 2011.
The agency forecast current account deficit of 1.5pct of GDP for 2012 and 2.2pct for the year after citing a sharp decline in export turnover.
Nonetheless, such potentials would barely be realised on quick policy loosening that could hurt foreign currency market’s stability. Rapidly decreasing interest rate could put dong under new pressures, which would then undermine macroeconomic stabilisation efforts, erode investors’ and consumers’ confidence and weaken foreign reserves.
Also, banking sector’s vulnerability could be another risk and businesses’ and financial industry’s confidence may be shaken on the spread of small banks’ problems. Although foreign currency reserves have been partly recovered, the economy is still likely to vulnerable to external shocks.
What is more, the costs for refinancing commercial banks, restructuring state-owned enterprises and raising civil servants’ wages to make up for surging inflation have challenged government spending. Moreover, an increasing proportion of government spending has been channelled off budget, raising public financial management risks.
It is crucial that state-run enterprises’ reform be accelerated so as to boost efficiency of this fundamental sector, which is a prerequisite for driving up GDP growth rate to 7pct-8pct – target of the socioeconomic development strategy for 2011-2020, this bank suggested.
In fact, reform has by far merely been found at small-scale state-run enterprises whereas the government committed to map out restructuring plan for 21 state corporations so as for them to be more commercially oriented. Also, increase transparency of financial operations at these giants would imply a signal of the government’s commitment to the reform.