Vietnam economic growth likely to have picked up pace in Q2

Workers at a scooter factory inside the Binh Xuyen Industrial Park in Vinh Phuc Province.

Vietnam’s second-quarter growth numbers, expected to be the first released in Asia this week, will likely show that expansion accelerated in the period, foreshadowing likely recoveries in the rest of the region.

Vietnam’s economy is benefiting from an increase in construction as a government loan subsidy program spurs credit growth. Other economies in the region, including Japan and Singapore, are forecast to report better second-quarter figures as some US$2.2 trillion in stimulus worldwide help stabilize overseas sales for companies from Japan’s Nissan Motor Co. to South Korea’s Kia Motors Corp.

“The worst has likely passed for Vietnam as well as the rest of the region,” said Paul Gruenwald, chief economist for Asia at ANZ in Singapore. “The focus now should be on assessing the strength of the recovery and how long it will take to return to potential growth. A full recovery requires a resumption of foreign demand; that is, discretionary spending in the US and Europe.”

OECD forecast

The Organization for Economic Cooperation and Development on June 24 raised its forecast for its 30 member nations for the first time in two years as the global recession shows signs of abating. The International Monetary Fund last week boosted its outlook for Australia for this year and next.

Japan’s economy will expand at an annual 2.3 percent pace in the second quarter, according to a Bloomberg News survey, after contracting a record 14.2 percent in the first. South Korea’s finance ministry last week forecast GDP will increase almost 2 percent in the second quarter from the previous three months, when it expanded 0.1 percent.

The MSCI Asia Pacific Index of the region’s stocks climbed 47 percent since March 9, when it fell to the lowest in more than five years, as the outlook for corporate earnings improved. Vietnam’s benchmark VN-Index has gained 64 percent this quarter.

Worst over

“Most countries have passed the depths of the crisis and those with strong domestic growth drivers will benefit more and recover faster,” said Alvin Liew, an economist at Standard Chartered Bank in Singapore. “While Vietnam’s exports remain fairly lackluster, the economy is well supported by pro-growth government policies.”

Vietnam, Indonesia, China and India, where growth remained positive amid the global slowdown, are examples of economies that have shown more resilience than other export-dependent nations because of domestic consumption, Liew said.

“The pickup in growth in the second quarter in Vietnam was domestic based” helped by the fuels, transport and garment industries, said Gruenwald of ANZ. “Output from the state sector seems to be growing faster than the rest of the economy as well. GDP growth should rise during the rest of 2009 as the fiscal stimulus plan continues.”

Vietnam’s government is aiming for 5 percent growth this year, down from a previous target of 6.5 percent. The economy grew 6.2 percent last year, the least since 1999.

Slowest growth

Growth in the first quarter was the slowest pace on record as overseas companies trimmed investment plans and manufacturing weakened amid the worst global recession since the Great Depression. Pledges of foreign investment into Vietnam and planned capital increases for existing projects fell 77 percent in the first half from a year earlier.

The State Bank of Vietnam said Monday it would keep interest rates unchanged this year to support economic growth. It is also focused on keeping consumer price gains under control after the National Assembly last month set an inflation ceiling of 10 percent for 2009.

“The central bank’s policy at the moment is to strictly control money supply to prevent an excess in credit growth, even though we’re trying to avert an economic slowdown,” Governor Nguyen Van Giau said in a statement.

Expectations of high inflation in Vietnam are constraining the government’s efforts to support growth through easing fiscal and monetary policy, Standard & Poor’s Ratings Services said in a report on June 10.

Credit Suisse Group AG last week raised its growth forecast for Vietnam, predicting the economy will expand 4 percent this year, from an earlier estimate of 2 percent.

“Poor foreign direct investment and exports will weigh on fixed investment this year, but we are revising up our 2009 GDP forecast on signs of early global demand stabilization,” said Joseph Lau, a Hong Kong-based economist at Credit Suisse Group AG. Last quarter, the economy “probably hit its low point, but growth recovery will likely be relatively moderate.”

Source: Bloomberg

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