Firms remain upbeat despite bad news

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According to Standard Chartered Bank’s “Vietnam - Warming the cold turkey” report released last week, though Vietnam’s gross domestic product (GDP) grew just 4 per cent on-year in 2012’s first quarter and the slowest since 2009’s first quarter, “there are reasons to remain optimistic.”

The report said the economy tended to grow most slowly in the first quarter and significantly faster in a year’s second half compared to the first half. During the 2009 downturn, the economy grew at a respectable 5.3 per cent, even though the first quarter’s GDP growth was a meager 3.1 per cent.

“With this in mind, we maintain our forecast of 5.8 per cent GDP growth for 2012. We expect second-quarter GDP to come in at 5.4 per cent year-on-year, and to gradually accelerate to 6.4 and 6.6 per cent in the third and fourth quarters, respectively.

“The main inflation drivers have peaked. We maintain our forecast that inflation will ease to 10.9 per cent by the second quarter, before dipping into the single digits of 8.9 per cent and 7.9 per cent in the third and fourth quarters, respectively,” the report said.

Fitch Ratings is also upbeat about Vietnam’s economy by affirming the country’s foreign- and local-currency issuer default ratings at ‘B+’. The outlook for both ratings was stable. The country’s ceiling was also affirmed at ‘B+’, and the short-term foreign currency issuer default ratings at ‘B’.

Art Woo, director in Fitch’s Asia-Pacific Sovereign Ratings group, said: “The ratings and the stable outlook reflect the success so far of efforts by Vietnam’s authorities to tackle the macro-financial imbalances that arose in 2010 and 2011.”

UNESCAP in mid-May forecast Vietnam’s GDP and inflation rates to be 5.8 and 9.8 per cent, respectively. UNESCAP economist Shuvojit Banerjee said though these figures might fail to reach the government’s expectations, “they are ideal ones particularly when Vietnam’s internal difficulties are becoming greater.”

Also, the Asian Development Bank recently forecast Vietnam’s GDP to grow by 5.7 per cent this year and pick up to 6.2 per cent in 2013, “owing to the improved global outlook for trade and investment and likelihood of easier monetary policy next year.”

Fitch said the macroeconomic improvements needed to be entrenched and banking and state-owned enterprise (SOEs) sector reform was needed to put upward pressure on Vietnam’s sovereign ratings.

The ADB stated authorities needed to accelerate SOE reforms if it wished to raise the efficiency of this dominating sector, a prerequisite for lifting average GDP growth to 7-8 per cent, the target of the Socio-economic Development Strategy 2011-2020.

Raymond Mallon, an Australian freelance economist with more than two decades experience working on Vietnam’s economy, said Vietnam boasted big growth potential, but the easing of credit constraints should stimulate increased investment, expenditure and growth.

“The key is to avoid pressures to target stimulus measures at weaker firms or sectors. Limited resources need to be directed to areas that will generate maximum benefits in terms of income and employment growth,” he said.

According to EuroCham Business Climate Index seventh quarterly survey, conducted in April/May 2012 with 240 European companies in Vietnam and released last week, some 38 per cent of companies surveyed stated a ‘good’ and 36 per cent a ‘neutral’ business outlook.

This is almost unchanged from last quarter, but is put into perspective by the 51 per cent of respondents that had a positive business outlook this time last year. Some 26 per cent of respondents had a pessimistic outlook for their business in the next six months.