Vietnam Business Forecast Report Q2 2009

Publication Date	March 2009
Publisher	Business Monitor
Product Type	Report
Pages	72
ISBN Number	1745-0764
Product Code	BMI03506

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Summary

Economy Buffeted By Global Storm, But Still Afloat

We foresee both economic and political risks rising in 2009 as global demand for Vietnam's manufactured exports fall and factories lay off workers. The global recession will shake the foundations of the Vietnamese growth story as it has been reliant on strong demand for manufactured products from G3 markets. With demand from developed markets slumping, Vietnam will be heavily reliant on remittances and FDI inflows to stimulate domestic demand and keep GDP growth in positive territory. We are expecting growth of 2.9% in 2009, rising to 5.0% in 2010 as an improving world economy and a weaker dong bolster exports. With Prime Minister Nguyen Tan Dung's economic reform agenda intact, although currently on the back-burner, we expect GDP growth to return to around 8% in 2011 and onwards.

While public discontent with the government is likely to rise as the economy slows rapidly, we see no major risk of mass protests or political turmoil. This is because the 'doi moi' economic reform agenda championed by the Communist Party of Vietnam since 1986 has brought considerable material gains for the wide majority of the population and diminished the support for pro-democracy activists. However, the government will not take any risks and has imposed tighter curbs on journalists and stepped up its surveillance of online media. On the foreign policy front, we expect a continued rapprochement with the US under the new Obama administration while intensified competition between Chinese and Vietnamese manufacturers may cause some tension with Beijing.

Vietnam is in line to take a hard hit in 2009 as exports to G3 economies contract sharply. We have revised down our GDP growth forecast for 2009 from 5.0% to 2.9% as the construction and manufacturing sectors contract. With domestic demand far from sufficient to fill the gap and Hanoi lacking the wherewithal to implement any sizeable fiscal stimulus, we believe the government will opt for the easy way out by devaluing the dong to increase the price competitiveness of Vietnamese exporters. We are currently expecting a 8.0% devaluation of the currency in 2009 to VND19,000/US$ by year-end, which should help growth recover to 5.0% in 2010.

The sharp deterioration in economic conditions both domestically and globally has prompted the Vietnamese government to shift its attention from economic reforms to devising measures to support growth in the short term in the face of slumping global demand. Only 73 out of a planned 262 state-owned enterprises (SOEs) were equitised, i.e. transformed into shareholder-owned companies, in 2008, and initial public offerings of SOEs like Bao Viet have been unsuccessful, largely due to the high pricing of shares. While continued delays in the equitisation process are expected, we are not expecting any shift in the government's economic reform agenda, which will continue to support economic activity.

Content

Executive Summary
- Economy Buffeted By Global Storm, But Still Afloat
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- Slowing Economy Raises Political Risk, Upheaval Expected
- While the economic downturn is likely to lead to an increase in public discontent with the government, we see no
- major risk of mass unrest along the lines of that seen in Myanmar in September 2007.
- Foreign Policy
- Testing Times For Hanoi
- We expect Vietnam to continue to edge closer to the US in its foreign policy under the new Obama administration
- in Washington, while the strengthening economic relations with China cannot be ignored.
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- BMI's 2009 Growth Forecast Cut To 2.9%
- We have, in view of the rapidly deteriorating external outlook in Q109, decided to downgrade our 2009 GDP growth
- forecast for Vietnam from 5.0% to 2.9%.
- Monetary Policy
- Aggressive Easing To Respark Inflationary Pressures?
- Following rate cuts, we are expecting 200bps of further easing before the end of H109, bringing the base rate down
- to 5.00%.
- Balance Of Payments
- Narrowing Trade Deficit To Bring Improved BoP
- We expect Vietnam's trade deficit to narrow sharply to US$9.3bn in 2009 after the record US$17.5bn shortfall
- accumulated in 2008.
- Exchange Rate Policy
Chapter 3: 10-Year Forecast
- The Vietnamese Economy To 2018
- A Bumpy Road To Stardom
- We remain positive about Vietnam's growth prospects over the next ten years, believing that the macroeconomic woes of
- 2008 and 2009 will have been a useful exercise for a government still inexperienced in managing a market economy.
Chapter 4: Special Report
- China
- A Seismic Upheaval In 2009?
- One of the biggest - and least discussed - 'wild cards' that could rear its head in 2009 is dramatic political
- upheaval in China.
- United States
- A Potential Double-Dip Recession
- The deteriorating global macroeconomic outlook, high levels of leverage, and a broken business model will combine
- to spell trouble for the financial services sector in 2009.
- Europe
- TA BLE: Exposure As % of National GDP
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Introduction
- Institutions
- Infrastructure
- Market Orientation
- BMI TRADE RATINGS
- Operational Risk
Chapter 6: Key Sector
- Infrastructure
- Defence & Security
Chapter 7: BMI Global Assumptions
- Global
- Economic Activity
- Monetary Policy
- TA BLE: DEVELOPED MARKET EXCHANGE RATE S
- Commodities
- TA BLE: EMERGING MARKET EXCHANGE RATES
List of Tables
- Table: Political Overview
- Table: ECONOMIC ACTIVITY
- Table: MONETA RY POLICY
- Table: BALANCE OF PAYMENTS
- Table: EXCHANGE RATE POLICY
- Table: Lo ng-Term Macro economic Forecasts
- Table: Banks' Leverage Ratios
- Table: Assets As % of Home Country GDP
- Table: Assets As % of Home Country GDP When Euro zone Is Considered 'Home Country '
- Table: Exposure As % of Total Exposure To Region
- Table: Banks' Foreign Exposure (US$ mn)
- Table: BMI BUSINESS AND OPERATI ONAL RISK RATINGS
- Table: BMI LEGAL FRAMEWORK RATINGS
- Table: Asia, FDI Annual Inflows
- Table: TOP EXPORT DESTINATIONS
- Table: Industry Forecast Scenario
- Table: Vietnam's Armed Forces, 2005-2013 ('000 personnel)
- Table: Global Assumptions
- Table: GLOBAL AND REGIONAL REAL GDP GROWTH, % chg y-o-y
- Table: Developed States, Real GDP Growth Forecasts
- Table: Emerging Markets, Real GDP Growth Forecasts