World Bank Forecasts 6% Growth for Vietnam in 2012

According to the report East Asia and Pacific Economic Update released by the World Bank on November 21, Vietnam’s gross domestic product (GDP) will increase 6.1 percent next year. The recent forecast confirms Prime Minister Nguyen Tan Dung’s expectations of 6 percent to 6.5 percent growth for 2012, which he announced at the opening session of a biannual meeting of the National Assembly last month.

GDP growth for the first six months of 2011 was 5.6 percent, and it is expected to grow to around 5.8 percent by the end of the year. The forecasted 6.1 percent growth rate for 2012 seems to bear out a new increasing trend that was previously curbed during the 2007-2009 Global Financial Crisis.

Monthly inflation has slowed to around 1 percent since June 2011 as stabilization measures implemented with the package called Resolution 11 have begun to sink in. The resolution, implemented on February 2011, included a wide range of monetary, fiscal and structural policy reforms intended to fight inflation, stabilize the economy and ensure social safety. However, the level of inflation is unlikely to decline substantially in the near future because of factors such as commodity prices, recent minimum wage adjustments, and market expectations of a more accommodating credit policy.

The trade deficit is expected to improve in 2011 as well, as a better outlook is likely to present itself in 2012. Import growth has slowed as a result of stabilization policies whereas export growth has remained robust, helped by high commodity prices. Export earnings grew 33.7 percent and the import bill increased 25.4 percent in the first eight months of 2011.

The World Bank’s report also said that a reduction of the trade deficit and significant purchases of foreign currencies by the State Bank of Vietnam have enabled a build-up of foreign reserves to around two months of imports by the end of July. This could help reduce the risk of immediate balance payment difficulties, as well as ease depreciation pressures on the Vietnamese dong.

However, it is reported that the tightening of monetary policies is starting to rebound on the banking sector. In response to stricter liquidity conditions, smaller commercial banks have offered high deposit rates of up to 18 percent to gain liquidity despite central bank guidance in keeping deposit rates at 14 percent or below, triggering fierce competition among banks. As there are no prescribed limits on lending rates, banks have raised them to as much as 22 percent to 27 percent.

The World Bank also predicted that Vietnam’s CPI will rise 10.5 percent with the trade deficit reaching around US$8 billion.

The report, issued biannually, still confirms a strong growth in emerging Asia despite weakening external demand, underscoring the need for governments to refocus on reforms to increase domestic demand and productivity.

Dezan Shira & Associates is a specialized foreign direct investment practice, providing business and legal advisory, tax, accounting, payroll and due diligence service to multinationals investing in China, Hong Kong, India, Vietnam and Singapore. Established in 1992, the firm is a leading regional practice in Asia with twenty offices in five jurisdictions, employing over 170 business advisory and tax professionals. To contact Dezan Shira & Associates Vietnam office, please email vietnam@dezshira.com or visit www.dezshira.com.