Vietnam Business Forecast Report Q3 2009

Publication Date	June 2009
Publisher	Business Monitor
Product Type	Report
Pages	70
ISBN Number	1745-0764
Product Code	BMI03943

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Summary

The 3.1% y-o-y expansion in Q109 was the lowest on record, but more recent macroeconomic data suggest that the government and central bank's stimulus measures are now gaining traction. We thus acknowledge upside risks to our 2.9% growth forecast for 2009, but refrain from an upward revision due to the still precarious state of the global economy. On the political front, the economic downturn has not yet seen any material repercussions, but we have nevertheless decided to lower our short-term political risk ratings on the back of high inflation and rising unemployment undermining public acceptance of one-party rule. Meanwhile, regional tensions have risen due to China's more assertive claims of sovereignty in the South China Sea.

The crackdown on trade union activists, bloggers and other political dissidents has left little doubt that the Communist Party of Vietnam has no intention of moving towards greater political freedom.

Nonetheless, the widening cracks in the government's monopoly on information remain a long-term threat to one-party rule. This has been particularly evident in Hanoi's efforts to silence domestic criticism of China, which has risen due to a controversial Chinese investment in bauxite mining in the central highlands. However, while Chinese investment into the extractive sector is likely to remain a contentious issue in the short term, we believe that economic integration carries the key to improved Sino-Vietnamese relations over the longer term.

We maintain our below-consensus 2.9% GDP growth forecast for 2009, but are now acknowledging upside risks to this forecast. This is due to strong fiscal and monetary stimulus bolstering domestic demand, and a weaker dong softening the contraction in external demand. With global economic conditions expected to improve slightly in 2010, we maintain our 5.0% growth forecast for next year. We also maintain our expectation that the government will stepwise depreciate the dong towards VND19,000/US$ by the end of the year. However, this carries risks to macroeconomic stability as public confidence in the dong has been impaired by expectations of higher inflation and speculation surrounding a devaluation.

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 (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
- Recovery Not Secure Despite Stimulus
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- Political Repression To Continue
- The crackdown on trade union activists and other political dissidents has left little doubt that the Communist Party of
- Vietnam in Hanoi has no intention of moving towards increasing political freedom
- Foreign Policy
- Hanoi To Keep A Wary Eye On Beijing
- We expect Hanoi's relations with its northern neighbour to remain tense in the short-to-medium term as Vietnam and
- China stand by their conflicting claims on the Paracel and Spratly islands
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Growth Bottoming Out, But Risks To Recovery Remain
- We maintain our below-consensus 2.9% GDP growth forecast for 2009, but are now acknowledging upside risks to this forecast
- Monetary Policy
- Rates On Hold Short Term, Further Cuts Expected
- With growth slowing to the slowest in a decade and consumer price inflation dropping back into single digits, we see room for the SBV to lower rates further in 2009
- Balance Of Payments
- BoP Improving, But Still Shaky
- Vietnam's balance of payments look in considerably better shape in Q209 than at the same time last year, but remains at risk from a further slowdown in exports and weaker remittance and foreign direct investment inflows
- Banking Sector
- Banking Sector To Fall Prey To Foreign Competition
- While a sharp slowdown in credit growth and an uptick in non-performing loans will hurt profits in 2009, we maintain our view that risks to the Vietnamese banking sector are limited
Chapter 3: 10-Year Forecast
- The Vietnamese Economy To 2018
- Growth To Return To 8% Long-Term
- We remain positive about Vietnam's growth prospects over the next 10 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
- The Outlook For Global Banking
- Business Environment Rating Outlook
Chapter 5: Special Report
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- Institutions
- Infrastructure
- Market Orientation
- Operational Risk
Chapter 6: Key Sectors
- Tourism
- Executive Summar
- Consumer Electronics
- Executive Summary
- Vietnam's domestic consumer electronics devices market, defined as including computing devices, mobile handsets, and video audio and gaming products, was estimated to be worth around US$3.4bn in 2008
Chapter 7: BMI Global Assumptions
- Global Assumptions
List of Tables
- Table: Political Overv iew
- Table: ECONOMIC ACTIVITY
- Table: MONETA RY POLICY
- Table: BALANCE OF PAYMENTS
- Table: Lo ng-Term Macro economic Forecasts
- Table: LOAN-TO-DEPOSIT RATI OS, Selected States
- Table: LOAN GROWTH (% CHG Y-O-Y), Selected States
- Table: COMMERCIAL BANKING BUSINESS ENVIRONMENT RATIN GS, SELECTED STATE S
- Table: BMI BUSINESS AND OPERATI ONAL RISK RATIN GS
- Table: BMI LEGAL FRAMEWORK RATIN GS
- Table: Asia, FDI Annual Inflows
- Table: BMI TRADE RATIN GS
- Table: TOP EXPORT DESTINATI ONS
- Table: Vietnam's Travel Industry - Historical Data And Forecasts
- Table: Consumer Electro nics Demand, 2006-2013
- Table: GLOBAL ASSUMPTIONS
- Table: GLOBAL & REGIONAL REAL GDP GROWTH
- Table: EMERGING MARKETS
- Table: COMMODITIES
- Figures released by the Vietnam National Administration of Tourism (VNAT) indicated that the tourist industry suffered a major slowdown in 2008