First quarter was low point for GDP growth, HSBC says

May 9, 2009
LookAtVietnam – Vietnam’s economic growth has probably begun accelerating, with the first quarter likely to be the low point in the country’s downturn, HSBC Holdings Plc said.

The economy expanded 3.1 percent in the first quarter from a year earlier, the slowest pace of expansion on record.

A round of rate cuts by Vietnam’s central bank, a government stimulus program, a weaker currency and resilient personal consumption expenditure are buoying the growth outlook, Prakriti Sofat, a Singapore-based economist at HSBC, wrote in a note. The economy may grow 4.5 percent for the year, compared with 6.2 percent in 2008, she said.

“The worst is behind us,” wrote Sofat. Vietnam is facing a “slowdown, not a recession,” she said.

The State Bank of Vietnam has cut its benchmark interest rate to 7 percent from 14 percent in October.

The central bank’s moves to date represent a “massive monetary policy easing,” Sofat wrote. The easing is now “working its way through the system,” she said in the note.

A government subsidy on loans – part of a stimulus package that Prime Minister Nguyen Tan Dung last month valued at US$8 billion – functions as a de facto further easing of monetary policy, according to HSBC. The loan subsidy program is creating a new “credit boom” in Vietnam, Citigroup Inc. said last month.

Exports holding up

Exports may be receiving some boost from a 10 percent “nominal depreciation” of the Vietnamese dong against the US dollar over the last year, Sofat wrote. Garment shipments have held up “reasonably well,” in part due to a focus on lower-end products that benefit during a period when shoppers’ incomes are being squeezed, she said in the note.

“We’re into summer orders already, and things are holding up,” said Jonathan Pincus, an economist with the Vietnam Program at the Harvard Kennedy School in Ho Chi Minh City, when asked about garment export performance this year.

Retail sales of goods and services in the country grew 21.5 percent in the first four months, according to the General Statistics Office in Hanoi. The “astounding” recent growth in retail sales in Vietnam “shows that consumption remains very strong,” HCMC-based fund manager Dragon Capital said in a note dated April 29.

“Strong growth and asset price gains (including commodity prices) over the last few years, even after taking into account the recent declines, mean that the average Vietnamese person is much better off,” Sofat wrote.

Vietnamese Prime Minister Dung said last month that gross domestic product may increase as much as 5.5 percent for the full year, while the International Monetary Fund foresees 3.3 percent growth.

Any positive figure is “an achievement when seen in the regional context,” Sofat wrote.


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