Vietnam’s growth to slow down, so as inflation: HSBC

As the local economy is expected to growth at a modest rate of 5.3 percent in 2013, the annual inflation will be at around 7-8 percent, according to the latest report from Hong Kong and Shanghai Banking Corp (HSBC).

Vietnam’s gross domestic product (GDP) has decreased significantly over the past few years, said HSBC’s November macroeconomic report.

The country’s economic growth target would be 5.5 percent and inflation at 7-8 percent in 2013, according to the recent economic plan for 2013 submitted by the government to the National Assembly.

However, potentials are still there, as the latest survey on the business environment launched by the World Bank (WB) showed that of Vietnam is more competitive than many regional countries (India, the Philippines and Indonesia) but Thailand, at the moment, HSBC said.

The country’s export growth at the present time compared to the end of last year is at two-digit level and the retail sales are rising thanks to the young population.


Photo: Tuoi Tre

HSBC also forecasted Vietnam’s GDP growth will fall to 5 percent this year from 5.9 percent in 2011. The growth rate will likely to pick up gradually from 5.3 percent in 2013 to 5.6 percent in 2014.

Regarding inflation, HSBC said that recently this indicator has been controlled relatively well, as the consumer price index in October it increased by 7 percent over the same period last year and up by 6.02 percent compared to the end of last year.

Previously, it was predicted that Vietnam’s inflation would be at 8 percent in 2012, 10.8 percent in 2013 and 9.4 percent in 2014.

With expected inflation to increase gradually from now until the end of the year, HSBC did not expect the central bank will further loosen the monetary policy and the OMO interest rate will be stable at 8 percent.

There are now still no specific reforms for state-owned enterprises (SOEs) and also little signs that there will be reforms soon, said the report.

Therefore, what most Vietnam observers would like to see is what the government is going to do to improve the business environment, improve the coordination between the central and local governments to enforce the law effectively, promote Vietnam’s processing capacity to increase the export turnover and reduce the import costs.

Foot-dragging production growth

The latest HSBC’s Purchasing Management Index (PMI) has showed that Vietnam’s economic activities are stable but there is no way to go back to the previous long-term trend.
The PMI fell slightly from 49.2 in September to 48.7 points in October, marking the 9th month decline in 2012. The headline PMI has remained below the critical 50.0 mark for seven months running.

The decline is caused by the weakened external demand and prolonged sluggish domestic demand.

Manufacturers reported further declines in output and new orders, as demand weakened on the back of a subdued domestic market and reduced global trade flows.

Production fell for the seventh month in a row, although the pace of contraction remained marginal overall.

New orders and new export business both fell for the sixth consecutive month. The decline in new export orders was the steepest in the survey history, as companies reported reduced demand from clients in China, Japan and Taiwan.

The new export orders index has fallen to its lowest level since the survey began in April 2011, reflecting the weak demand from the euro area, Japan and the US.

“Weak global and domestic demand continues to weigh on the manufacturing sector; new export orders contracted at the sharpest pace since the series began. The rise of input costs did not help, as manufacturers could not pass off the costs to consumers due to sluggish demand,” said Trinh Nguyen, Asia Economist at HSBC.

“The output index level, although still signaling contraction, is stabilizing at close to fifty suggesting that the economy will likely recover towards the end of 4Q2012.” Nguyen added.

The most optimistic point is the stable FDI inflows, which provides investment capital and jobs that are very necessary, as well as the inbound remittances from overseas Vietnamese, said the PMI report.

The HSBC Vietnam Manufacturing PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in around 400 manufacturing companies.

The panel is stratified geographically and by Standard Industrial Classification (SIC) group, based on industry contribution to Vietnamese GDP.

For each of the indicators the ‘Report’ shows the percentage reporting each response, the net difference between the number of higher/better responses and lower/worse responses, and the ‘diffusion’ index. This index is the sum of the positive responses plus a half of those responding ‘the same’.

The PMI is a composite index based on five of the individual indexes with the following weights: New Orders – 0.3, Output – 0.25, Employment – 0.2, Suppliers’ Delivery Times – 0.15, Stock of Items Purchased – 0.1, with the Delivery Times index inverted so that it moves in a comparable direction.

Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change. An index reading above 50 indicates an overall increase in that variable, below 50 an overall decrease.

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