Country Report Vietnam July 2009

Outlook for 2009-10

• The political landscape is unlikely to change dramatically in 2009-10, with the ruling Communist Party of Vietnam almost guaranteed to maintain its firm grip on power.
• Although the government has so far succeeded in managing the economy in such a way as to prevent a contraction this year, there are concerns over the potential negative side-effects of its stimulus efforts.
• The State Bank of Vietnam (the central bank) will maintain an accommodative monetary policy stance in order to support the economy.
• The Economist Intelligence Unit forecasts that economic growth will slow to 4.2% this year, before picking up to 4.8% in 2010.
• Although inflation will slow from recent highs, there are growing concerns that the government's economic stimulus measures, which have prompted an acceleration in credit growth, will result in renewed inflationary pressures.
• The value of the dong against the US dollar will fall by 7.4% in nominal terms in 2009 and will decline further, although at a slower pace, in 2010.
• The current-account deficit will narrow in 2009-10 as a result of a reduction in the merchandise trade deficit, stemming from a sharp drop in the import bill from the high reached in 2008.

Monthly review

• The party has again faced criticism from foreign governments for its harsh approach to dealing with its political opponents and those considered to be a threat to national security.
• The government's stimulus programme has had a positive impact in terms of boosting the economy, but there are worries over its sustainability, specifically in terms of how it will be financed.
• Vietnam's economy, supported by stimulus measures, has continued to be fairly resilient in the face of the global economic downturn. Real GDP growth stood at 4.5% year on year in the second quarter of 2009.
• Although the economy has not fallen into recession, there are still serious problems. In the first half of 2009 a total of 650,000 new jobs were created, a year-on-year decline of 17%.
• Despite the expansionary impact of the stimulus package, inflation continued to ease throughout the first half of 2009 on a year-on-year basis.
• Exports have continued to fall, but not as fast as imports. The merchandise trade deficit has therefore become more manageable.

This report covers the following industry codes:
SIC Code: 49
NAICS Code: 22