Country Report Vietnam October 2009

Outlook for 2010-11

• The political landscape is unlikely to change dramatically in 2010-11, as the ruling Communist Party of Vietnam is virtually guaranteed to maintain its firm grip on power.
• After soaring to an estimated 9.2% of GDP in 2009, the budget deficit will remain wide in 2010-11. However, the State Bank of Vietnam (SBV, the central bank) will tighten monetary policy as inflationary pressures build.
• Economic growth will pick up in 2010-11. However, the economy will not expand at the heady rates recorded in the years preceding the 2009 slowdown; growth is forecast to average 5.9% a year over the next two years.
• Assuming that the monetary authorities take steps to rein in credit growth in 2010, inflation will remain in single digits, averaging 8.7% in 2010-11, up from 7.3% in 2009.
• The Economist Intelligence Unit expects the authorities to take action to engineer a fall in the value of the dong. The SBV will proceed cautiously, allowing the currency to depreciate by an average of 1.6% a year in 2010-11
• The current-account deficit will widen again in 2010-11, averaging around 10% of GDP, having narrowed to 9.9% this year because of a greater fall in imports than in exports.

Monthly review

• The reform-minded prime minister, Nguyen Tan Dung, appears to be facing greater opposition from the conservative members of the party hierarchy, who have driven the recent crackdown on dissidents.
• The government continues to pursue corruption cases with varying degrees of effectiveness.
• The government appears to be struggling to strike a balance between stimulating the economy on the one hand and keeping inflationary expectations in check and maintaining fiscal stability on the other.
• In recent months there has been growing speculation that the authorities will again devalue the dong or will at least introduce a greater degree of flexibility in their management of the currency.
• Despite sharp year-on-year falls in exports, imports, foreign investment, and tourist arrivals, Vietnam has continued to post year-on-year GDP growth. In the third quarter the economy expanded by 5.8%.
• Although there are growing concerns about the potential for a sharp upturn in inflation, in September year-on-year inflation stood at just 2.4% year on year, up only slightly from 2% in August.

This report covers the following industry codes:
SIC Code: 60
NAICS Code: 52