Difficult first half of 2012 for Vietnamese economy

Vietnam ended the first half of 2012 with GDP growth rate of only 4.38 percent with the deflation fear. However there are some bright spots.

At the end of the first six months of 2012, a series of analysing reports issued by international organisations, banks and economic experts lowered the growth prospect for this year. At the National conference of Investment and Planing Sector morning July 4th, prime minister forecasted growth of Gross Domestic Product (GDP) this year will be about 5.2- 5.7%. However, GDP in the first six first months of the year is only 4.38%.

Too many obstacles

A sad sign is Purchasing manager Index (PMI) in production sector decreased in June, marking the third consecutive month of decline since March 2012. The continuous decline in production shows that enterprises have to face difficult business conditions in Vietnam. Both domestic and foreign demands are low, Trinh Nguyen Economic Expert about Asia of HSBC bank commented.

To support production and business, on June 29th State Bank has lowered 1 percent in rediscount rate and refinancing rate was brought down to 8 percent and 10 percent alternately. Thus, from the beginning of year, these rates were cut down 5 percent while ceiling interest rate has been reduced 4 percent (at 9%)

Although rates have reduced but credit growth remains slow due to low demand and enterprises are finding it difficult to access loans (because there is insufficient collateral) The government has set the credit growth target for the year 14- 15%. However, experts predict that it may reach only 13%.

We can see clearly the demand stimulus efforts of the State Bank of Vietnam (SBV) through debugging difficulties for business and production operations of enterprises. But perhaps the key problem is not in the production sector. Because Consumer Price Index (CPI) dropped 0.26 percent in June, this is the first time CPI has decreased after 38-month continuous rise.

Economist Vu Dinh Anh said that inflation in Vietnam is no longer caused by cost- push or increasing of money supply as before but due to the declining of the total demand. In 2012, the root of stagnation problem is from demand not supply, he said.

Vietnam economic picture in the first six months is not fully dark. The Wall Street Journal in a recent article review Vietnam Economy is showing a healthy signs GDP in second quarter up 4.7 percent compared to 4 percent of first quarter.

“One more positive sign is rise in foreign exchange reserve with an increase of more than $10 billion in the first 6 months. Foreign exchange reserves reached 10 weeks of imports and can reach 12 weeks of imports at the end of this year. It is an evidence for the health of economy,” he said

Some economists assume that perhaps the worst period has passed, but Vietnam economy is still facing many difficulties. In the last 6 months the focus would be on bad debt settlement solution that State Bank pledged to offer at the beginning of this July.

 

Category: Economy