Signs of economic recovery still weak: financial watchdog
Signs of economic recovery still weak: financial watchdog
The signs of recovery in manufacturing sectors are still dim given their performance in 2012, said the National Financial Supervision Commission (NFSC).
The decline in industrial sector last year was most clearly seen in the construction and manufacturing industries, according to a recent NFSC report reviewing the economic situation in 2012.
The freezing real estate market, along with cuts in public investment, led to the slowdown of the construction industry during the period.
The industry’s growth rate turned to a negative 5.4 percent in the first half of 2012 after growing some 10 percent annually in the previous years.
In the second half of 2012, the growth rate slightly improved thanks to increased investment in construction.
The decline of the industrial sector is also a major concern. The Index of Industrial Production (IIP) in 2012 was at around 4.8 percent, lower than the 7.5 percent growth of 2011.
Recently, HSBC announced the Purchasing Management Index (PMI) of Vietnam in December fell to 49.3 points from 50.5 points in November.
Thus, after only one month of recovery, the indicator is well below the average of 50 points for the eighth time in nine months, reflecting that the recovery of the economy is still in the very early stage and is fragile when the demand remains weak and consumer confidence keeps falling.
The average PMI reading in Q4/2012 is 49.5, up from 46.9 in Q3 and the highest since the third quarter of 2011.
After rising moderately in November, the level of manufacturing output remained broadly unchanged during December.
“The economy is stabilizing, as indicated by the output level. However, the economic recovery process is still in its fragile state as external demand remains weak and consumer confidence is subdued,” said Trinh Nguyen, Asia Economist at HSBC.
At the same time, the credit growth of the local banking sector increased at a record low, at about 6 percent in 2012, which also showed the private sector still found it difficult in accessing loans.
According to the NFSC assessment, in the first 11 months of 2012, the number of newly established enterprises was reduced both in number, some 10 percent, and registered capitals, down 7.5 percent. Meanwhile, some 51,800 local businesses were shut down or suspended operations.
These show the signs of economic recovery are still very fragile.
However, the economy in 2012 has some bright spots.
Inflation in 2012 fell sharply from 18.13 percent in 2011 to 6.81 percent. If the price adjustment of service sector is excluded, core inflation in 2012 is at under 10 percent and overall inflation in 2012 at a much lower level than the 6.81 percent rate.
Along with that, the overall balance of payments improved significantly, to be around $ 9-10 billion surplus, and foreign exchange reserves increased significantly, to approximately 12 weeks of imports.
With those improvements, the exchange rate was stable in 2012, and the difference between the free exchange rate and the official rate was scaled down to about VND200 per US dollar, equivalent to less than 1 percent compared to the official rate.
“Given all the aforementioned positive signs, the CDS index - risk premium of the Vietnam’s government bonds - fell to the lowest in December, at 250 points, down from a record 600 points in late 2011.”
“This shows the confidence of international investors in the improvement of macroeconomic Vietnam has increased significantly, " NFSC said.
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