Economy 2011 Witnessing Optimistic Outlook

The lawmaking National Assembly required higher targets than those proposed by the Government. In addition to GDP growth of 7 - 7.5 %, the legislative body also capped the trade deficit at 18 % of exports and consumer price index (CPI) at 7 %.

 

The Vietnamese economy is expected to confront numerous challenges in 2011. GDP growth may reach 7 - 7.5 %, but the country will still need a high rate of investment, about 40 % of GDP, to achieve this target. Notwithstanding good post-crisis recovery, the Vietnamese economy still carries many weaknesses. To improve the quality of growth, Vietnam needs to speed up the process of economic restructuring and performance improvement.

 

The Economist Intelligence Unit (UK) forecasts Vietnam’s economic outlook for 2011 through 2014 as a highlight on the world economic stage. This burgeoning Southeast Asian economy is set to grow at a 6.7 % average annual rate in terms of real GDP and an average of 7.2 % from 2012 to 2014. However, the main problem facing Vietnam's economic policymakers is how to contain inflationary pressures while at the same time trying to pull off ambitious economic growth targets.

According to the Doing Business 2011 report released by the World Bank (WB) and the International Finance Corporation (IFC), Vietnam moved up 10 places in the global rankings to 78 among 183 economies in the ease of doing business for local firms and ranked fourth in terms of most improvement. Thanks to the ease of company start-up by creating a one-stop shop that combines the processes for obtaining a business license and a tax license and by eliminating the need for a seal for company licensing, Vietnam only stayed after China in terms of improvement. The country also halved the cost of registering newly completed buildings. This and the transfer of the authority to register buildings from local authorities to the Department of National Resources and Environment made dealing with construction permits easier. In addition, the credit information system has been improved, allowing borrowers to examine their own credit report and have errors corrected.

 

According to the Government, export turnover is expected to reach US$78 billion in 2011, up over 10 % from 2010.

 

Import growth slowed down in the last months of 2010 and was lower than export growth, narrowing the trade deficit. Nonetheless, exporters are facing great difficulties due to unsustainable development, raw material shortage, antidumping lawsuits and lack of development capital. Mr Nguyen Hoai Nam, Deputy General Secretary of the Vietnam Association of Seafood Exporters and Producers (VASEP), said: tra fish (pangasius) export will confront more difficulties because of higher exchange rates and insufficient capital sources. The shortage is forecast to worsen from June. Mr Doan Trieu Nhan, Vice Chairman of the Vietnam Coffee and Cacao Association (Vicofa), asked the Government to provide financial support for purchasing and stockpiling, as many companies lack capital.

 

Positively, world economies will continue to revive, foreign investment inflows will increase, commercial, service and market policies will be more favourable, and exports will grow next year.

 

Meanwhile, the National Assembly’s Commission on Economic Affairs proposed keeping the trade deficit within or below US$13.5 billion in 2010, or 18 % of export turnover. According to this agency, if the trade deficit is at 19.5 % of exports as expected by the Government, Vietnam will easily incur a larger current account deficit, while the country’s foreign exchange reserves have fallen sharply and are unlikely to expand in a couple of years.

 

Higher-than-forecast inflation in 2010 is expected to remain a major threat to macroeconomic stability in 2011. Inflation will continue to escalate rapidly in the first months of 2011 due to periodic factors. After that, inflationary pressures may ease when high interest rates of loans borrowed in late 2010 start to reach maturity. Capping inflation at 7 % or lower is the target of the National Assembly and the Government has to do its utmost to achieve this goal.

 

To curb high inflation, the State Bank of Vietnam is pursuing a tightened monetary policy. High lending interest rates narrow access to capital sources for production investment. Interest rates are expected to ease after the first quarter of 2011 provided that inflation is controlled and public spending discipline is strengthened.

 

This year, the world economy will still face many challenges and growth in developed countries is forecast to stay from 0.5 % to 1 %. A huge amount of unemployed capital in the world is always channelled into the best places for profit making. In the meantime, the amount of registered foreign direct investment (FDI) in Vietnam in 2010 decreased sharply compared with the previous two years. This year, Vietnam needs to attract this investment capital source. The country expects FDI capital disbursement in 2011 to increase 7 - 10 % year on year to US$12 billion.

 

In 2011, foreign portfolio investment (FPI) into Vietnam is expected to be boosted as valuations on the stock market are currently attractive relative to long-term economic prospects, as investment capital is being channelled into emerging markets. To attract more FPI, we will need drastic policies to stabilise the economy and improve Vietnam's prestige in the eyes of international investors.

 

Clearly, the year 2011 starts with many unfavourable factors, but the Vietnamese economy is still highly appreciated for its high growth and macroeconomic stability - preconditions for business development.