Viet Nam moving in the right direction

Monday, Feb 02, 2015 08:00

Standard Chartered's economists discuss the prospects for the Vietnamese economy in 2015 during the Global Research Briefing 2015 held in HCM City. They are upbeat about the economic outlook for Viet Nam with foreign investment likely to expand and exports to recover this year. — VNS Photo
Standard Chartered Bank recently released a report called Global Research 2015 – The Year Ahead, Rekindling the Animal Spirits, which also takes a look at Viet Nam's economic and financial outlook, growth, FDI prospects, trade and interest rate. Viet Nam News spoke with the bank's economist, Betty Rui Wang, about these issues.

How do you see the prospects for the Vietnamese economy in 2015?

Betty Rui Wang Economist, NEA Standard Chartered Bank.

This year we expect Viet Nam's GDP growth to accelerate to 6 per cent, slightly higher than our previous forecast of 5.8 per cent for 2014. Foreign direct investment and exports are likely to increase as well. We also expect some progress to be made on structural reforms in 2015, the final year of the country's five-year socio-economic development plan.

We expect FDI to gather pace this year given the country's rising profile in the global value chain. It has become a leading attractive destination as investment costs in China have become higher and thus less attractive for investors. Multinational companies have expressed a keen interest in increasing investment in Viet Nam thanks to the country's geographic advantage, low labour and operating costs and its participation in regional trade pacts.

Exports are expected to improve. Traditional exports like textiles and footwear performed well last year, reflecting Viet Nam's established competitiveness in these sectors. We expect traditional exports to remain robust, especially given the country's involvement in the multilateral Trans-Pacific Partnership trade agreement. The TPP should draw increased FDI, though negotiations are likely to take time to finalise and restrictions may be placed on the trade benefits to Viet Nam under the pact. Export of electronics, now the country's biggest export item, will accelerate as FDI increases and more production lines start operation. Growth in electronics slowed last year, partly as an unfavourable base effect and weaker-than-expected global demand affected performance. Viet Nam has been proactive in strengthening bilateral trade relations with neighbours, which bodes well for the export outlook.

Inflation is unlikely to be a concern this year. Headline inflation fell to below 3 per cent last November and core inflation, excluding food and energy prices, has been below 4 per cent since September. This trend is expected to continue this year so we revise down our forecast to 3.4 per cent year-on-year from 4.7 per cent.

We hope the State Bank of Viet Nam remains accommodative as low inflation gives room for policy manoeuvre. A 50bps (basis points) rate cut will take the policy rate to 6 per cent this year.

Fiscal policy is also likely to be accommodative as the authorities' focus remains on promoting growth. We see that fiscal policy will remain supportive, especially of targeted sectors including agriculture and SMEs.

How do you think Viet Nam's structural reforms are going?

Progress is expected in structural reforms. The Viet Nam Asset Management company is said to plan to adopt a new method for calculating the value of bad debts, stepping up its efforts to regulate debt pricing in the medium to long term. Stricter debt classification and provisions will be implemented beginning this year, after a year of delay. These measures will be positive steps towards the necessary regulation of the banking sector to rein in non-performing loans. Prime Minister Nguyen Tan Dung has said that Viet Nam aims to bring down the ratio of bad debts to bank loans to 3 per cent by this year's end from the current 4.17 per cent.

We also expect the government speed up SOE reform. Progress was moderate last year. The Ministry of Finance had originally planned to equitise around 200 SOEs in 2014, but only 75 were equitised as of the first 10 months.

However, SOE equitisation is a positive step, we have to acknowledge. That is the way to help improve SOEs' efficiency. I think privatisation is definitely a positive step taken by the Government in terms of reforming SOEs. But at the same time, there are still a lot of other issues, which the Government also needs to address going forward. If it can continue with the commitment and implement it alongside the equitisation process, that would be positive for the whole economy in the longer run.

How do you expect the interest rate trend to be this year?

There will be one more rate cut to come this year, probably of 50 basis points. That will bring the key policy rate from 6.5 per cent to 6 per cent. Why do we think the SBV should cut further? First, I think policy rate is an important policy tool to help the economy. Second, if you look at the current inflation trend, partly thanks to low global oil prices, Viet Nam's headline inflation has dipped below 1 per cent in January, which hasn't been seen for a decade. That actually increases the real interest rate. So it will provide room for the central bank to cut further. I do notice that the central bank also said that they are going to adjust the lending rate or urge commercial banks to reduce the lending rate. I think that is a positive intention because, if we look at credit growth, there is still room for it to grow further. Of course, demand on the ground is a very important factor affecting the credit growth. But on the other hand, we think there is still room for the central bank to manipulate the policy rate in terms of boosting credit growth and business activities. — VNS

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