Vietnam Business Forecast Report Q2 2014

Date: February 26, 2014
Pages: 47
US$ 1,195.00
Report type: Strategic Report
Delivery: E-mail Delivery (PDF), Download

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Vietnam Business Forecast Report Q2 2014
Includes 3 FREE quarterly updates

Core Views

Evidence of improving macroeconomic fundamentals in Vietnam, a strong real GDP growth reading of 6.0% year-on-year (y-o-y) in Q413, accelerating foreign direct investment inflows, robust remittances and merchandise trade exports, have all reaffirmed our conviction that the Vietnamese economy will begin 2014 on a strong note. We forecast real GDP growth to come in at 5.9% in 2014, versus Bloomberg consensus of 5.5%. We expect benign inflation, improving current account dynamics, and the Vietnamese government’s stance on prioritising macroeconomic stability over rapid growth, to continue to underpin the stability of the Vietnamese dong over the coming months. Over the medium term, we see scope for the currency to appreciate to around VND20,560/ US$ by the end of 2014, supported by a robust outlook for foreign direct investment (FDI) inflows and remittances. We believe that private sector driven economic growth over the coming years should bode well for tax revenue growth and bolster Vietnam’s fiscal position. Good progress on fiscal reforms will see Vietnam’s budget deficit narrow from a projected 5.1% of GDP in 2013 to 4.0% of GDP by 2015.

Major Forecast Changes

We have revised down our average 2014 headline consumer price inflation forecast from 6.8% to 5.8% to reflect recent data indicating benign inflationary pressures.

Key Risks To Outlook

Downside Growth Risks From Rising Commodity Prices: Should commodity prices witness a strong rebound in 2014, we could see the central bank adopting a more hawkish stance on monetary policy. The risk of having to hike interest rates aggressively would present significant downside risks to economic growth. Further Deterioration In External Demand: Vietnam’s trade account has been holding up well and has recorded surpluses in recent months. However, should we see a deterioration in the trade balance, we would not be surprised to see the Vietnamese dong coming under further selling pressures.
Core Views
Major Forecast Changes
Key Risks To Outlook


SWOT Analysis
BMI Political Risk Ratings foreign Policy
We believe that China's growing military presence in the region will continue to dominate Vietnam's foreign policy agenda over the coming years. Vietnam is likely to continue to fall further behind in an arms race with China due to the latter's wide technological lead with regards to its military capabilities and stronger financial position. Nonetheless, we expect Hanoi to maintain a sizeable defence budget over the coming years.
  Table: Political Overview
Long-Term Political Outlook
Key Political Challenges Over The Coming Decade
Vietnam's biggest political question over the coming decade is whether one-party rule under the Communist Party of Vietnam (CPV) will face growing calls for democratisation, as was the case in other major South East Asian countries. While our core scenario envisages the CPV transforming itself into a technocratic administration, it faces major economic challenges which if mismanaged could lead to widespread unrest. On the foreign policy front, we expect an increasingly powerful China to drive Vietnam further into the camp of Asian nations with close relations with the US.


SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Starting 2014 On A Firm Footing
Vietnam's latest real GDP reading, which showed that the economy expanded by 6.0% y-o-y in Q413, has reaffirmed our conviction that the Vietnamese economy will begin 2014 on a strong note. Not only are we witnessing more evidence of a sustained pick-up in production activity and employment in the manufacturing sector, but we also expect foreign direct investment (FDI) inflows to accelerate as the economic recovery gathers pace over the coming quarters. We forecast real GDP growth to come in at 5.9 % in 2014, versus Bloomberg consensus of 5.5%.
Monetary Policy
New Credit Growth Target Suggests Monetary Policy To Be Kept On Hold
We see limited scope for the State Bank of Vietnam (SBV) to adjust its monetary policy over the coming quarters. While monetary tightening could risk undermining the nascent economic recovery, further easing by the SBV is also likely to have very little impact on economic growth as banks remain saddled with debt. We reiterate our view that the SBV will keep its benchmark refinancing rate on hold at 7.00% throughout 2014.
Balance of Payments
De-Dollarisation Efforts Bearing Fruit the Vietnamese dong has remained s  Table within a narrow range of VND20,815/US$-VND21,238/US$ since the beginning of 2012, and we expect this trend to continue as we head into 2014. Furthermore, there is increasing evidence that the economy is evolving rapidly to become less reliant on the US dollar. We believe that Vietnam's improving macroeconomic fundamentals (benign inflation, robust current account dynamics) will continue to play a major role in supporting the SBV's de-dollarisation efforts over the years.
Fiscal Policy
Bearish Sentiment To Turn In Light Of Progress On Fiscal Reforms
We continue to see room for sentiment towards the country's sovereign credit ratings to improve. We view recent moves by the Vietnamese government to liberalise fuel and electricity price controls as a positive sign that further reforms may be forthcoming.
Furthermore, we believe that private sector driven economic growth over the coming years should bode well for tax revenue growth.
Good progress on fiscal reforms will see Vietnam 's budget deficit narrow from a projected 5.1% of GDP in 2013 to 4.0 % of GDP by

the Vietnamese Economy to 2023
Vietnam's growth prospects over the next decade remain positive in our view, as reflected by our bullish forecasts for real GDP growth to average 6.2% over 2014-2023. We foresee a more s  Table economic environment, with inflation averaging a benign 5.8% and a relatively balanced current account through 2014, before witnessing a mild surplus averaging 1.9% of GDP from 2015-2023.
  Table: Long-Term Macroeconomic Forecasts


SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
  Table: BMI Business And Operation Risk Ratings
  Table: BMI Legal Framework Rating
  Table: Labou r Force Qualit y
  Table: Asia Annual FDI Inflows
  Table: Trade And Investment Ratings


  Table: Autos Sales , 2011-2018 (VAMA Membe rs)
  Table: Autos Production, 2011-2018
  Table: Autos Trade, 2011-2018
Food And Drink
  Table: Food Consumption Indicato rs – Histo rical Data & Forecasts , 2010-2017
  Table: Alcoholic Drin ks Volume /Value Sales – Histo rical Data & Forecasts , 2010-2017
  Table: Mass Groce ry Retail Sales By Format – Histo rical Data & Forecasts , 2010-2017
Other Key Sectors
  Table: Freight Ke y Indicato rs
  Table: Oil & Gas Secto r Ke y Indicato rs
  Table: Pha rma Secto r Ke y Indicato rs
  Table: Telecoms Sector Key Indicators
  Table: Defence and Security Sector Key Indicators
  Table: Infrastructure Sector Key Indicators


Global Outlook
Fairly Benign Prognosis... With Risks
  Table: Global Assumptions
  Table: Developed States , Real GDP Growt H, %
  Table: Eme rging Markets , Real GDP Growth , %
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