"Economic growth in 2011 is forecast to be lower than in 2010 and the investment sector will be hardest hit. Continued pursuit of tight monetary policy, public investment reduction, and cash flows channelling into manufacturing fields will help slow down CPI but the inflation is unlikely to stay below 18 percent in 2011,” said PhD Dinh The Hien, Director of Applied Informatics - Economics Institute, at a conference on “Identifying investment channels in 2011” held in Hanoi by the Vietnam Commodity Exchange (VNX) in collaboration with the Vietnam Chamber of Commerce and Industry (VCCI).
Slowing economic growth
PhD Hien said economic growth slowed down in the first months of 2011 because the Government underscored the priority of curbing inflation and stabilising macro economy.
GDP growth in the first six months fell to 5.57 percent from 6.16 percent in the same period of 2010. Industrial output - the primary component in GDP formula - expanded only 8.8 percent, trailing expectations. Retail and service revenues climbed 22.3 percent in the first seven months. However, if price-rising factors are excluded, the real growth was just 4.6 percent, much lower than 16.3 percent in the same period last year.
Trade deficit in July plunged as gold export revenue topped US$800 million. If the precious metal is excluded, trade gap in July was estimated at US$8.4 billion, equal to 16.9 percent of exports.
Regarding public investment, in couple with resolutely tightened monetary policy, the fiscal policy did not go as well as expected. As the economy had been invested unevenly and irrationally, the Resolution 11 did not generated as good as expected results. Total social investment capital remained as high as 40 percent or so of GDP in the first six months of 2011. Public investment in July still rose 8 percent from the previous month.
Another snag is the State Budget’s revenues and expenditures. The State Budget reports revenues fulfilling 65 percent of the full-year target in the seven months while expenditures going as much as 58 percent of the estimation. Public debt is growing up robustly because of Vietnam’s ballooning budget deficit.
CPI eased in May and June 2011 but accelerated to 1.17 percent in July, bring the hopes of lower interest rates and economic stability to an end. Deposit rates in Vietnam are among countries with world’s highest rates.
As regards forex market, tightened forex management policy helped stabilise forex market and lower exchange rates, forcing the rates on the free market lower than officially quoted rates at commercial banks. Forex reserves increased in the second quarter of 2011, an important element to keep exchange rate stable.
Where to invest?
PhD Hien said interest rates will remain high in the third quarter before easing at the end of the year.
Gold prices will move in tune with global trends. Bullion prices are forecast to stay above VND40 million per tael in the third quarter and to fall to VND38 million at the end of the year.
VND/USD exchange rate is predicted to be stable in the third quarter of 2011 and may go up slightly. However, in case US dollars rebound and Vietnam fails to attract foreign investment capital, the exchange rate may leap to VND22,500 per dollar.
"The Government is focusing on stabilising the foreign exchange market. However, there are many things needed to be done to realise this target. Macroeconomic stability will gradually strengthen, helping ease CPI growth and boost forex stability. But, if trade deficit remains high and FDI inflows do not improve, the forex rate will be under high pressure toward the end of the year as forex reserves of Vietnam remain relatively small,” Hien analysed.
PhD Hien said, the Vietnamese stock market was one of worst performers in Asia in the first seven months of the year. Given hosts of disadvantageous factors like a relatively long time for the economy to regain high growth momentum, weak demand, high interest rates, limited cash supply and excessive share supply in the last months of the year, the VN-Index - the primary gauge of the Vietnamese stock market - is expected to move in the range of 400 to 430 points and the bearish sentiment still dominates in the third quarter. In the fourth quarter, if lending rates and CPI fall significantly, the VN-Index may climb to 500-point benchmark. However, with ongoing macroeconomic stabilisation policies and measures, the gauge is forecast to range at 400-450 points.
Besides, the credit crunch policy in couple with high interest rates will continue to sink the real estate market. Given current conditions, real estate prices will be unlikely to rise in 2011 and the first quarter of 2012.
“Economic indicators are expected to be stabilised in the last months of this year but it is unlikely to have a strong money supply at this time as in other years. Hence, it is not suitable to apply “tread water” investment strategy this year’s end but selectively pick up good assets for the next year,” Hien added.
Mr Nguyen Duy Phuong, General Director of the Vietnam Commodity Exchange, said investors and businesses should downscale and reduce expenses in the most rational manner to have handy resources to snatch up the opportunity when the market recovers.
Quynh Chi
Vietnamese
