Viet Nam's rice export will contribute to its economic growth in the second half of this year.— Photo dddn

HA NOI (Biz Hub) — Viet Nam's economic growth will be sluggish over the next few quarters and become dependent on external demand, without concrete reforms being introduced to address key issues, according to a report released by HSBC on Thursday.

The bank believed that from a macro perspective, the economy has stabilised but economic activity has not returned to previous levels.

Major growth indicators, including HSBC's manufacturing PMI (Purchasing Managers Index), the CPI (Consumer Price Index) and trade prints, reflect sluggish domestic activity. In the second quarter of this year, growth in GDP (Gross Domestic Product) was five per cent year on year, rising slightly from 4.8 per cent in the first quarter of 2013.

There have been some signs of progress, including the Prime Minister approving the Viet Nam Asset Management Company (VAMC).

"Exports, especially foreign-invested manufactured goods, are holding up the economy, contributing to final demand and employment growth. Manufacturing in the electronics and textiles and garments industries are expanding robustly while commodity exports are being hit by weak global prices," the report said.

"We expect this trend to continue for the rest of the year. Import growth is primarily driven by component imports, while consumption imports remain weak."

The bank believed that inflation is expected to remain manageable due to weak domestic demand and low global commodity prices. However, HSBC said the government could potentially raise the costs of public services while revenue collection remains sluggish as a result of slower growth.

In the first quarter of this year, the total revenue collection fell by 3.9 per cent year on year and expenditure slowed to 15.4 per cent year on year. Most of the decline in revenue comes from low corporate income revenue, value added tax (VAT), especially VAT on imports.

The report also showed that core inflation rose by 0.6 per cent in June from 0.4 per cent in May and is expected to drop significantly next year thanks to a favourable base effect.

HSBC expected the economy to pick up only slightly to 5.1 per cent from five per cent in 2012. The bank also believed that Viet Nam was likely to under perform in the coming decade, unless reforms to resolve major bottlenecks in the economy are introduced, including an inefficient banking system and a state-owned sector.

According to the bank, the second half of this year could determine whether Viet Nam will muddle through or return to its former levels of growth over the next decade. — VNS