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Vietnam economy starts picking up on ‘successful’ stimulus
Analysts say an economic recovery in Vietnam has begun as exports revive and stimulus spending boosts domestic production.
Vietnam has “weathered the crisis astonishingly well so far,” HSBC Holdings Plc. said in a research note Wednesday. A rebound in construction and manufacturing is now driving the economy, it said.
The economy is forecast to experience a “big bounce” in growth to 6.8 percent in 2010 from 4.7 percent this year, the bank said.
“The recovery has begun,” Prakriti Sofat, a Singapore-based economist at HSBC, said in Wednesday’s note. “Things will continue to improve from here on, given the impact of the massive policy easing, the bulk of which was delivered in the later part of 2008, and improvement in global growth outlook.”
The State Bank of Vietnam cut its benchmark lending rate to 7 percent in February from 14 percent in October 2008. The key interest rate may be maintained at its current level until the third quarter of 2010, according to HSBC.
Vietnam’s economy grew 4.5 percent in the second quarter from a year earlier, up from 3.1 percent in the previous three months, the statistics office said last week. For the first half, gross domestic product expanded 3.9 percent.
Exports fell 10 percent to US$27.6 billion in the first six months, but in May and June exports grew 3.2 and 6.5 percent month-on-month, figures from the Ministry of Planning and Investment showed.
“The economic picture during the first half proved that the government’s stimulus measures began to take effect,” the research team of Ho Chi Minh City-based Saigon Securities Inc. wrote in a report dated July 6.
“The loosened monetary policies together with the interest-rate subsidy program played an important role in helping the economy through the most difficult times,” the team said. It forecast the economy could expand by up to 4.9 percent this year.
The economy is improving, Prime Minister Nguyen Tan Dung said in a statement posted late Tuesday on the government’s website that called for topping a 5 percent growth target that had been revised down earlier this year from an initial goal of 6.5 percent.
Stimulus measures
Companies and ministries need to use stimulus spending that the government values at more than $8 billion more effectively in the second half, Dung said in the statement. The bulk of the stimulus is targeted at infrastructure projects, HSBC said.
“The most successful policy has been the 4 percentage-point interest-rate subsidy for corporates,” Sofat wrote. “The fact that so much lending has gone through suggests that there was pent-up demand out there, and so growth should improve.”
The nation’s banking system lent a combined VND372.3 trillion ($21 billion) to businesses as part of the loan-subsidy program as of July 2, the central bank reported July 3. Vietnam had credit growth of 17 percent in the six months ending June compared with the end of 2008, the central bank said Tuesday.
The pace of credit growth does raise questions about the quality of lending, Sofat wrote. Price pressures are also rising, with inflation likely to accelerate to 11 percent by the middle of next year, she said. Vietnam’s inflation rate was 3.9 percent in June, the lowest since 2004.
The government will try to prevent inflation from accelerating to more than 8 percent by the end of this year, Government Office chief Nguyen Xuan Phuc said in another statement also posted on the government’s website late Tuesday.
There have been suggestions that it’s time to withdraw the stimulus package, but businesses still need to be assisted to fully recover and prosper, Vietnam Investment Review on Wednesday reported Cao Sy Kiem, a member of the National Advisory Council for Monetary Policy, as saying.
“Stimulus measures can be adjusted gradually when the economy begins to stabilize, local businesses recover, workers have their jobs back and the stock and property markets return buoyant,” Kiem said.
“But we should only lower stimulus spending for businesses that have recovered. For those companies that are still struggling, stimulus measures should be available to assist them in an effective way.”
The government has no immediate plans to cut stimulus spending or restrict the number of beneficiaries, Vietnam Economic Times reported the head of the central bank’s Monetary Policy Department, Nguyen Ngoc Bao, as saying Tuesday.
“Any speculation that the government will do so [to ease the pressure on the state budget] is unreal, meant to disturb the economy,” Bao said.
thanhnien, bloomberg
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