Boston, MA -- (SBWire) -- 10/04/2013 --Core Views
Vietnam's economic recovery is beginning to lose its momentum, with the country recording a relatively weak real GDP growth figure of 5.0% year-on-year (y-o-y) in Q213, up only slightly from 4.9% in Q113. Moreover, given that we have recently begun to see signs of a slowdown in economic activity across the region, 2013 looks increasingly precarious for the Vietnamese economy. Accordingly, we expect real GDP growth to come in at 5.3% in 2013 before accelerating towards 6.0% in 2014.
The State Bank of Vietnam (SBV) cut its refinancing rate by 100 basis points (bps) from 8.00% to 7.00% on May 13. Easing commodity prices (especially within the grains complex) have played a major role in anchoring Vietnam's headline consumer price inflation (CPI) within the low 6.0-7.0% range in recent months, and we expect this trend to persist as we head into H213. Accordingly, we expect the SBV to keep its policy rate on hold through 2014.
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In line with our long-held view that Vietnam's costly welfare subsidies will need to be gradually withdrawn as part of the government's broader efforts to fix its fiscal imbalances, the MoF raised its fuel price cap by around 2% on July 17 (the fourth hike this year). We forecast Vietnam fiscal deficit to narrow gradually from an expected 5.2% of GDP in 2013, to 2.7% by 2017.
Major Forecast Changes
We have revised down our real GDP growth forecast from 6.0% to 5.3% for 2013.
We have also revised our end-2013 policy rate forecast to 7.00% to reflect the latest rate cut by the State Bank of Veitnam (SBV).
Key Risk 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.
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Now Available: Vietnam Business Forecast Report Q4 2013
Fast Market Research recommends "Vietnam Business Forecast Report Q4 2013" from Business Monitor International, now available