On July 3, the Hong Kong and Shanghai Banking Corporation (HSBC) released a report on Vietnam ’s macro economy and the prospects for the country’s markets.
The report predicts that Vietnam ’s GDP growth rate this year will reach 5.1 percent. However, low purchasing manager index in June reflects a slowdown in the manufacturing sector, due to a lack of demand from both the domestic and overseas markets. It also says that the inflation rate will be below 6 percent year on year, giving the State Bank of Vietnam (SBV) scope to lower the open market rate.
Many observers share the same sentiment, hoping that the slow down in growth could be an opportunity for the country to clear out the deadwood and rid itself of the burden that has been holding back the economy. However, no one should hold their breath, added the report.
It further says that some reforms are gathering pace, including state-owned enterprises having to disclose their earnings and the ongoing restructuring in the banking sector. The most promising is the Ministry of Industry and Trade’s draft strategy to attract small and medium enterprises from overseas to develop industrial clusters.
These steps, along with many others, are necessary for Vietnam to increase its productivity and become less dependent on input-led growth. In the meantime, however, a slowdown is inevitable.
The report also states that inflation is slowing and likely to stay in single-digit levels this year and next year. Growth will likely accelerate in the second half of this year, suggesting that the worst could be over.
But with a lack of demand and bad debts, there is still plenty left to do to unburden the economy. For now, at least it is heading in the right direction, says the report.
According to HSBC, with inflation slowing and the trade deficit narrowing, the macro economic environment for Vietnam looks promising. The SBV has also been able to accumulate more foreign reserves so it can safeguard the economy against risks.
Additionally, reforms are gathering pace to tackle deep-seated issues in the economy. These are necessary to ensure that growth is built on increased productivity rather than credit expansion, a more sustainable strategy. As such, while growing is slow, it might be a blessing in disguise, says the report./.