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12 October 2009

Standard Chartered sees brighter outlook for Vietnam

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Standard Chartered Bank has revised upward its three-year outlook for Viet Nam’s economic growth in light of how well the country has weathered the global economic crisis, in addition to proactive fiscal measures and resilient domestic demand, reported VNStoc

"Along with China, India, and Indonesia, [Vietnam] is one of the few countries that did not experience a year-on-year contraction in GDP, according to official data," the report said. "The latest GDP growth data, for the third quarter of this year, show that the economy is on a solid recovery track, though the export sector remains sluggish."

Vietnam’s economic growth has continued to rebound from a low of 3.1 percent in the first quarter of this year to 5.8 percent in the third quarter. The recovery was largely driven by domestic demand, with retail sales growing consistently at around 20 percent between April and August.

"A rebound in industrial production has also added positive momentum to growth, even though export performance so far this year has been disappointing," the report said.

The bank also revised Vietnam’s inflation forecasts modestly upward in line with the stronger growth projections. It expected the State Bank of Vietnam to start hiking the prime rate in the second quarter of 2010 rather than in the third quarter, even though there were other tools still available to manage lending and contain inflationary pressure.

Despite the optimistic reassessment of the economy, the bank also pointed out some emerging risks not dissimilar to those encountered in 2008.

"In particular, the widening of the trade deficit in recent months points to an imbalance between domestic strength and external weakness. And while current inflation remains tame both on a year-on-year and a month-on-month basis, aggressive fiscal and monetary stimulus is generating inflation expectations which could be self-fulfilling," Standard Chartered said.

"Commodity prices could trigger a further deterioration in both the trade deficit and inflation, as we saw in 2008. The good news is that we do not expect a sharp rise in prices of food, energy, or metals... Given the deterioration in external balances, the bias will be for the Government to use the exchange rate more aggressively to narrow the trade deficit."


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