Vietnam Business Forecast Report Q3 2008

Publication Date	June 2008
Publisher	Business Monitor
Product Type	Report
Pages	62
ISBN Number	1745-0764
Product Code	BMI01200

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Summary

Macroeconomic Risks Mounting The macroeconomic risks are now mounting in Vietnam as inflation and the trade deficit continue to rise. The government has shown its resolve to bring inflation back under control by raising policy rates sharply in H108. We retain doubts about the effectiveness of policymaking, but monetary tightening and weakening domestic demand should bring a deceleration of inflation over H208. This will inevitably come at the cost of slower growth and we are currently forecasting GDP expansion to slow to 7.0% in 2008 before rising to 7.5% in 2009 and 8.5% in 2010. However, we cannot rule out the possibility of a sharper slowdown, which could bring risks to political stability in the form of labour unrest and street protests.

Inflation fighting has been the focus for the government and National Assembly so far this year and will continue to be so until price growth returns to single digits. Inflation is steadily becoming a political issue in Vietnam as much of the government's legitimacy is vested in its ability to improve the living conditions of the general population. As rising food and housing prices eat into the material gains achieved in recent years, many Vietnamese are now becoming increasingly critical of the widening income differences in the nominally socialist state. The discontent with economic conditions has so far been limited to factory strikes, but could potentially become more widespread, a risk which is likely to affect government policy.

We lowered our GDP growth forecast for 2008 from 8.2% to 7.0% in January and are now seeing growing signs that a deceleration in growth will materialise this year. Q108 GDP data displayed weaker growth in both construction and manufacturing, two key sectors for the economy. We believe a further deterioration will be seen in coming quarters as domestic demand feels the pinch from higher prices and monetary tightening. There are also risks on the external side, with US demand for Vietnamese goods already showing signs of slowing. Reduced growth should be conducive for a deceleration of inflation, which we are anticipating to reach a peak of around 25% in mid-2008 before falling towards 18% by the end of the year.

Content

Executive Summary
- Macroeconomic Risks Mounting
Chapter 1: Political Outlook
- SWOT Analysis
- Bmi Political Risk Ratings
- Domestic Politics
- Inflation Poses Risk for Regime Stability
- Our Short-Term Political Risk Rating for Vietnam Has Fallen from A Peak of 86.7 in Mid-2007 to A Level of 79.4 on
- The Back of A Sharp Decline in The Social Stability Sub-Rating from 75.0 to 52.5, Due to Soaring Inflation and A Rising
- Number of Wage-Related Strikes
List of Tables
- Table: Vietnam Political Overview
Chapter 2: Economic Outlook
- SWOT Analysis
- Bmi Economic Risk Ratings
- Economic Activity
- Short Lapse in Economic Growth Expected
- We Believe Vietnam Will Experience A Brief Slowdown in Economic Growth in 2008 and 2009, but Should Remain
- One of The World's Fastest-Growing Economies over Our Five-Year Forecast Period
List of Tables
- Table: Economic Activity
- Monetary Policy
- Getting Tough on Inflation
- Vietnam Is Now Decisively Realigning Its Monetary Policy in Order to Focus on Inflation Targeting as Evidenced by
- The 325bps Hike of The Key Lending Rate on May
List of Tables
- Table: Monetary Policy
- Exchange Rate Policy
- Limited Scope for Appreciation
- We Are Cautiously Forecasting A Further Appreciation of The Dong in 2008, but Note That Predicting The Performance
- of The Currency Is Notoriously Difficult, Given The Conflicting Considerations for The State Bank of Vietnam (Sbv) -
- or in Reality, The Government
List of Tables
- Table: Exchange Rate Policy
- Capital Markets
- Ipos Could Revive Falling Market
- We Believe That Initial Public Offerings (Ipos) Could Soon Be Resumed in Vietnam as The Government Seeks to Raise
- The Attractiveness of The Domestic Stock Market
Chapter 3: Business Environment
- Business Outlook for Global Frontier Markets
- Growing Fast on The New Frontier
- The 41 States That Bmi Examines in A New Report on Our Online Service May Make up Only A Small Slice of The World
- Economy, but They Possess Characteristics That Will See Them Gain Importance in The Eyes of Investors and Global
- Businesses over The Coming Years
List of Tables
- Table: Frontier Markets - Key Data and Projections for Top 10 Countries
- Frontier Investment
- Potential and Pitfalls
- The Spectacular Macroeconomic Performance of Frontier Markets in Recent Years Has Been Matched by Mildly
- Successful Efforts to Deepen Capital Markets
List of Tables
- Table: Gdp per Capita, US$ (in Order of % Increase)
- Table: Diversity through Frontier Markets - Correlation Coefficients January 2004-April 2008
- Table: Frontier Market Indices
- Regional Overview
- Laos
- Neighbouring Economies The Key to Growth
- Laos's Gdp Growth Has Been Boosted in Recent Years as Neighbours China, Thailand and Vietnam Compete for Its
- Natural Resources
- Yemen
- Huge Potential, but Don't Bank on Gcc Membership
- Markets Do Not Come Much More Frontier than Yemen, and, as Would Be Expected, There Is Huge Potential for
- Development, with The Prospect of Eventual Gcc Membership Likely to Act A Key Investment Pull
- Democratic Republic of The Congo
- Mining Industry to Drive Growth
- The Democratic Republic of The Congo's Mining Industry Will Be A Key Driver of Growth and Is Likely to Attract
- Significant Levels of Fdi, with Our Real Gdp Forecasts Standing at 8.3% and 7.9% in 2008 and 2009, Respectively
List of Tables
- Table: Democratic Republic of The Congo - Economic Activity
- Cuba
- Investment Prospects after Fidel
- The Accession of A New Leadership Structure in Cuba Has Sparked Excitement That The 45-Year-Old Trade Embargo
- with The US May Be Lifted and Cuba May Move toward Market Liberalisation
List of Tables
- Table: Cuba Macroeconomic Data and Forecasts
- Mongolia
- Minerals to Drive Economic Boom
- Mongolia Is in The Midst of A Massive Resource-LED Economic Boom That Should Lift Gdp Growth into The Double
- Digits and Underpin Robust Increases in Exports and Inflows of Foreign Investment Capital over The Long Term
List of Tables
- Table: Mongolia - Economic Activity
Chapter 4: Business Environment
- SWOT Analysis
- Bmi Business Environment Risk Ratings
- Business Environment Outlook
- Institutions
List of Tables
- Table: Bmi Business and Operational Risk Ratings
- Infrastructure
List of Tables
- Table: Bmi Legal Framework Ratings
- Market Orientation
List of Tables
- Table: Asia, Fdi Inflows
- Table: Top Export Destinations
- Table: Bmi Trade Ratings
- Operational Risk
Chapter 5: Key Sectors
- Oil and Gas
List of Tables
- Table: Vietnam Oil & Gas - Historical Data & Forecasts
- Automotives
List of Tables
- Table: Vietnam Autos Sector - Historical Data and Forecasts