Vietnam Business Forecast Report Q1 2009

Publication Date	November 2008
Publisher	Business Monitor
Product Type	Report
Pages	73
ISBN Number	not applicable
Product Code	BMI03041

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Summary

Global Slowdown Brings Risks To Economic Recovery

Macroeconomic risks are on the rise again due to a deteriorating outlook for the important export sector and FDI disbursements in 2009 as key overseas markets dip into recession and foreign investors struggle to find financing. Weaker external demand will prompt the government and central bank to stimulate domestic demand through easing fiscal and monetary policy, which may create risks for the anticipated decline in inflation towards single digit levels over 2009. We are currently expecting GDP growth to remain weak in 2009, but to rebound to abovetrend growth of 9.3% in 2010 as the global economy recovers and foreign investment disbursements resume strength. However, persistent inflation remains a risk to Vietnam's longterm growth prospects.

Turbulent economic conditions over the past year have prompted criticism of Prime Minister Nguyen Tan Dung's reform agenda by more conservative factions within the higher echelons of the Communist Party of Vietnam (CPV), who fear that Vietnam's rapid opening to world markets has unduly exposed it to the caprices of global financial markets. We foresee a temporary slowing of market reform as the government focuses on stabilising the economy and bolstering growth in the face of weakening external demand. Nonetheless, we believe the main reform agenda will remain intact and could in fact be accelerated in certain areas in order to attract more foreign investment.

We have revised down our GDP growth forecast for 2009 from 7.0% to 5.0% as weaker overseas demand will combine with still struggling domestic demand to slow economic momentum. The worrying outlook for the export sector, in view of stagnant or even negative growth in key overseas markets such as the US and the EU, brings back risks to Vietnam's balance of payments situation, which could renew concerns about the value of the dong, in particular if doubledigit inflation proves to be more persistent than expected. We are forecasting inflation to fall to 10% by the end of 2009 on the back of slower domestic demand and falling global prices of key commodity items.

Vietnam's first ever personal income tax law will become effective on January 1 2009, replacing a previous system in which expatriates and local residents were taxed at different levels. The new bill provides a common set of rules for individuals resident in Vietnam for 183 days or more in a 12month period, stipulating personal income to be taxed at a rate between 5% and 35%, with a personal allowance of VND48mn (US$2,800) and an additional allowance of VND19mn (US$1,120) per dependent. As such the new bill reduces the highest marginal tax level applicable to expatriates from 40% to 35%. A new feature in the bill compared to previous legislation is that it covers nonemployment income such as interest, dividends and capital gains on real estate and securities investment.

Content

Executive Summary
Global Slowdown Brings Risks To Economic Recovery
Chapter 1: Political Outlook
- Swot Analysis
- Bmi Political Risk Ratings
- Domestic Politics
- Premier Under Pressure, But Reform Agenda Intact
- The Current Economic Slowdown Has Raised Speculation That Reformist Prime Minister Nguyen Tan Dung Will Be
- Challenged By Traditionalists Within The Communist Party Of Vietnam (Cpv)
List Of Tables
- Table: Vietnam Political Overview
- Foreign Politics
- Hanoi Balancing Between Beijing And Washington
- Chapter 2: Economic Outlook
  - Swot Analysis
  - Bmi Economic Risk Ratings
  - Economic Activity
  - Outlook For 2009 Deteriorating, Recovery Expected In 2010
  - We Have Revised Up Our 2008 Gdp Growth Forecast Somewhat From 5.5% To 6.0%, While Simultaneously Bringing
  - Down The 2009 Projection From 7.0% To 5.0%
List Of Tables
- Table: Economic Activity
- Monetary Policy
- Central Bank Turns To Supporting Growth
- Vietnam Has Moved To Relax Monetary Policy As Prices Began To Fall In October 2008
List Of Tables
- Table: Monetary Policy
- Balance Of Payment
- Slowing Fdi Disbursements Pose Risks To Bop
- The Trade Balance Has Moved Back Into Focus As Vietnam Is Poised For A Slowdown In The Export Sector Due To
- Weaker Demand In Key Overseas Market, Most Notably The Us
List Of Tables
- Table: Balance Of Payments
- Currency Forecast
- Government To Allow Dong Depreciation In 20082009
- Investment Climate
- Hanoi Could Move To Ease Fdi Rules In 2009
- We Believe The Vietnamese Government May Soon Move To Ease Rules On Foreign Direct Investment In Order To
- Boost Investment Inflows To Cover The Trade Deficit, Expected At Us$21.3bn In 2008 And Us$20bn In 2009
- Banking Sector
- Banking Sector Offers Ample Opportunities For Foreigners
- We View The Vietnamese Banking Sector As A Veritable ShangriLa For Early Entrants As PoorlyCapitalised And
- Inefficient Domestic Banks Are IllPrepared For The Opening Of The Banking Market To Foreign Entrants As Pledged
- In Vietnams Accession To The Wto In January 2007
- Chapter 3: 10 Year Forecast
  - The Vietnam Economy To 2018
  - A Bumpy Road To Stardom
  - We Remain Positive About Vietnams 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
List Of Tables
- Table: Vietnam LongTerm Macroeconomic Forecasts
- Chapter 4: Special Report
  - Why The Us Can Remain World Superpower
  - Wealth Is Shifting East
  - The Uss Current Financial Woes Will Not Necessarily Undermine Its Position As A Global Superpower
List Of Tables
- Table: Geopolitical Power Index
- Chapter 5: Business Environment
  - Swot Analysis
  - Bmi Business Environment Risk Ratings
  - Business Environment Outlook
List Of Tables
- Table: Bmi Business And Operationalrisk Ratings
- Institutions
List Of Tables
- Table: Bmi Legal Framework Ratings
- Infrastructure
- Market Orientation
List Of Tables
- Table: Asia, Fdi Annual Inflows
- Table: Top Export Destinations
- Bmi Trade Ratings
- Operational Risk
- Chapter 6: Key Sectors
  - Telecoms
  - Executive Summary
  - Bmi Continues To Believe That Broadband Subscriber Growth Will Be Strong Over The Next Five Years
List Of Tables
- Table: Telecoms Sector Mobile Historical Data & Forecasts
- Power
- Executive Summary
- Vietnam Is Ranked Third Ahead Of Pakistan In Bmis Updated Power Business Environment Rating, Thanks Largely
- To The Growth Potential Of Power Consumption And Energy Demand, Plus Healthy Scores In Several Other
- Categories
List Of Tables
- Table: Vietnam Power Historical Data & Forecasts
- Chapter 7: Bmi Global Assumptions
  - Global
List Of Tables
- Table: Global Assumptions
- United States
- Eurozone
- Japan
- China
- Commodities