Economic downturn forecast to hit Vietnam again

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SaigonTimes English - 33 month(s) ago 25 readings

HANOI – The country’s leading experts have voiced concern that Vietnam is entering into a fresh battle to stave off yet another economic downturn, citing the central bank’s latest ceiling deposit rate reduction.

Economic downturn forecast to hit Vietnam again

By Tu Hoang - The Saigon Times Daily

HANOI – The country’s leading experts have voiced concern that Vietnam is entering into a fresh battle to stave off yet another economic downturn, citing the central bank’s latest ceiling deposit rate reduction.

Worse still, macro-economic indicators in the first quarter point to a high possibility that the economy is spiraling into stagnation.

Vo Tri Thanh, vice head of the Central Institute for Economic Management (CIEM), said: "Vietnam’s economy is actually coming to a standstill. For a developing economy like Vietnam, economic growth of a mere 4% means stagnation."

The Index of Industrial Production (IIP) growth of only 4% is the lowest in many years, he noted. While inventory has hit a record high, private sector investment and foreign direct investment (FDI) have taken a nosedive, and trade deficit has slid sharply.

Meanwhile, according the National Financial Supervisory Commission, the credit growth in Jan-Mar stood at a minus 2.13%. With prices factored in, the negative growth would be 4.79% in the first two months of the year.

The commission said production stagnation had dragged down the capital absorption capacity of the economy and businesses. As economic woes are taking their toll, a lot of enterprises have seen their financial position deteriorating rapidly, making it difficult for them to take out bank loans.

Tran Dinh Thien, director of the Vietnam Economics Institute, ascribed poor liquidity in the economy to the inability of enterprises to absorb credit though lenders have made more funds available for borrowers and have shown signs of cutting lending rates.

Cao Sy Kiem, chairman of the Association of Small and Medium Enterprises, said small and medium firms were still paying an annual lending rate of 18% to 19% even though the ceiling deposit rate has been lowered to 12%.

ANZ Bank described the recent rate cut as surprising as the central bank’s governor last month said the deposit rate cap could only be slashed by one percentage point each quarter.

The bank said monetary loosening might cause expectations of inflation to soar again and that if this happened, it would be difficult to keep inflation under control. In addition, as dwindling prices of foods are the major reason for inflation to ease, while prices of non-food items, especially fuels, stay high, the pressure on consumer price has yet to lessen.

The economy was in a fierce fight against inflation in 2008 but later struggled with an economic downturn in 2009. Thereafter, inflation control and macro-economic stabilization had always been top priorities.

Now, it seems the economy would face another economic downturn soon.

The Asian Development Bank (ADB) predicted inflation would be restrained at a single-digit level this year, and then rise to 11.5% in 2013. Such a prediction has sparked concerns, especially when the central bank has promised to lower the ceiling deposit rate on a quarterly basis.

Thien said the economy was stuck in a vicious circle of stagnation and inflation. The root cause of this circle is inefficient public investment, said Tomoyuki Kimura, country director of ADB in Vietnam.

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