Country Report Vietnam September 2009

Summary

The political landscape is unlikely to change dramatically in 2009-10, as the ruling Communist Party of Vietnam is virtually guaranteed to maintain its firm grip on power.
The budget deficit (excluding on-lending) will widen to the equivalent of 9.4% of GDP in 2009. The deficit is expected to narrow to 8.3% of GDP in? 2010.
The State Bank of Vietnam (SBV, the central bank) has indicated that it intends to keep its main policy rate at its current level of 7% throughout the remainder of 2009.
The Economist Intelligence Unit forecasts that real GDP growth will be at its slowest for nearly two decades in 2009, at 4.2%, before picking up to 5% in? 2010.
Strong credit growth and continued upward pressure on food and fuel prices will boost inflationary pressures in 2010. Year-on-year consumer price inflation is forecast to average 7.3% in 2009 and 8% in 2010.
We forecast that the currency will depreciate by 7.4% in 2009, to an average of D17,761:US$1. In 2010 the rate of depreciation will slow to 2.1%.
The current-account deficit will narrow in 2009-10 as a result of a contraction in the merchandise trade deficit. Exports will fall in 2009, reflecting weak external demand and lower global prices for Vietnam's major goods exports.

A journalist and two bloggers were detained recently after openly criticising government policies. The journalist and one of the bloggers had been released by September 8th.
Many of the country's large commercial banks have begun to call on the SBV to do away with its current cap on lending interest rates. The SBV has explicitly denied the banks' request.
As economic conditions in Vietnam begin to improve, debate over the country's future economic strategy has begun. Discussion of whether the country's current industrial strategy is viable is likely to be prioritised.
Concerns that inflation may return with a vengeance in the second half of 2009 are evident among Vietnamese, although the latest inflation figures from the government suggest that such worries are premature.
A US-based soft-drinks firm, Coca-Cola, intends to invest US$200m in Vietnam over the next three years, with additional investment planned for? 2012-15.

This report covers the following industry codes:
SIC Code: 60;20;70
NAICS Code: 52;311;72