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World Bank predicts 6.1% growth
The World Bank has predicted that Viet Nam's gross domestic product would increase 6.1 per cent next year in its East Asia and Pacific Economic Update released yesterday.
It said the real GDP growth rate in the first half of 2011 was 5.6 per cent, and is expected to be around 5.8 per cent for the whole year.
Monthly inflation slowed to around 1 per cent since June 2011 as stabilisation measures began to take effect.
However, inflation is unlikely to decline substantially in the near future because of factors such as commodity prices, minimum wage adjustments, possible hikes in electricity tariffs and market expectation of a more accommodating credit policy during the last quarter of the year.
Trade deficit is expected to improve in 2011. Import growth has slowed as a result of stabilisation policies whereas export growth has remained robust helped by high commodity prices. Export earnings grew 33.7 per cent and the import bill increased 25.4 per cent in the first eight months of this year.
High commodity prices have helped the export value of key agricultural commodities such as rice, coffee, cashew, pepper, tea, vegetables and rubber to grow by nearly 40 per cent. At the same time, crude oil exports have surged by 52 per cent in value despite a volume increase of only 5 per cent.
The report said a narrowing of the trade deficit and significant purchase of foreign currencies by the State Bank of Viet Nam have enabled a build-up of foreign reserves to around 2 months of imports by the end of July. This could help reduce the risk of immediate balance payment difficulties as well as ease depreciation pressures on the Vietnamese dong. The current account deficit is estimated to be less than 4 per cent of GDP.
However, it said the tightening of monetary policies is starting to put pressure on the banking sector. In response to stricter liquidity conditions since late 2010, smaller commercial banks have offered high deposit rates of up to 18 per cent to gain liquidity despite central bank guidance in keeping deposit rates at 14 per cent or below, triggering fierce competition among banks. As there are no prescribed limits on lending rates, banks have raised them to as much as 22-27 per cent.
With economic slowing down, the pressure on borrowers is expected to grow in the coming months, resulting in some deterioration of the quality of bank sector assets in 2011-12. While the central bank has supported weaker banks through greater liquidity, it has hinted that some consolidation may be needed if the weaker banks do not perform up to industry standards.
The World Bank also predicted that CPI would rise 10.5 per cent with trade deficit reaching around US$8 billion.
According to the report, growth is still strong in developing East Asia, but continues to moderate mainly due to weakening external demand, underscoring the need for governments to refocus on reforms to increase domestic demand and productivity.
The report, issued biannually, projected that amid uncertainties in Europe and a global growth slowdown, real GDP in developing East Asia will increase by 8.2 per cent in 2011 (4.7 per cent excluding China) and by 7.8 per cent in 2012. Domestic demand in middle-income countries was the largest contributor to growth in the region, although it is easing driven by the normalisation of fiscal and monetary policies.
"Lower growth in Europe in the course of fiscal austerity together with the need to increase capital coverage would affect East Asia. Less credit from European banks can also affect capital flows to East Asia, but high reserves and current account surpluses protect most countries in the region against the impact of possible renewed financial stress," said Bert Hofman, World Bank Chief Economist for the East Asia and Pacific Region.
"Governments can take this opportunity to refocus on reforms that will enhance growth in the medium – and long – term. Higher investments in infrastructure, education and social security systems can help countries increase productivity and move toward higher value added production," said World Bank Senior Economist Ekaterina Vostroknutova, leading author of the report." Any possible stimulus programmes should be fiscally sustainable, well-targeted and directed at promoting the structural transformation needed for stronger, domestically driven growth."
Where levels of investments are already high, increasing the quality and efficiency of these investments should take priority alongside rebalancing growth towards domestic consumption, says the report. Further investment in disaster management and prevention is also becoming more important for the region.
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