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HSBC cuts Vietnam growth forecast to 5.1%
By Thanh Thuong - The Saigon Times Daily
Monday,  May 7, 2012,20:51 (GMT+7)

HSBC cuts Vietnam growth forecast to 5.1%

By Thanh Thuong - The Saigon Times Daily

HCMC – HSBC Vietnam has adjusted down Vietnam growth forecast from 5.7% to 5.1% for this year, as the credit crunch is occurring faster than expected, says the bank’s macroeconomic report announced last Thursday.

Like other countries in the region, Vietnam’s economic growth has been led by credit over the last ten years, resulting in an average growth of 7%, but at the same time exerting pressure on inflation.

Therefore, the Government last year implemented monetary tightening measures to limit demand in a bid to deal with high inflation. As a result, credit growth dropped to 10.9% in 2011 from 27.7% in 2010.

Despite the central bank’s policy rate cuts in early 2012, the total loans have dwindled 1.9% as of March, showing that the local demand is much lower than expected.

Given the credit squeeze and a sudden economic growth slowdown in the first quarter to some 4%, HSBC predicted the central bank would further reduce policy rates in the next months.

Shrinking aggregate demand has pulled down inflation and the import demand considerably, thus trade balance and dong stability may improve. Exports may also decline as Vietnamese dong becomes less competitive and foreign demand is falling.

HSBC expressed concern about the declining import figures in the early months. The poor import growth reflects the sluggish domestic demand as well as more difficult production environment.

Though expecting the export growth to rise again in the coming months when lending rates are lowered, HSBC cut its forecast for the whole year growth to 14% from 20.6%. The private consumption growth is also predicted to slow down to 4.3%, versus the earlier forecast of 4.8%.

As inflation continues the downward trend, from 17% in last year’s January to 10% this April, the recent deposit rate cuts help relieve the burden on the market.

With inflation under control, Vietnam still has to face another long-running battle, said HSBC in its report.

Price pressure may shoot up in the second half of 2012 in Asia. Therefore, it is likely that the monetary policies of the central bank will fail to timely reflect the market, seriously affecting Vietnam dong.

To avoid rapid growth accompanied by escalating inflation, restructuring is a must to boost investment efficiency, and hence improve labor productivity, said HSBC.

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