Seven forecasts for Vietnam’s economy in 2014

Seven forecasts for Vietnam’s economy in 2014

Foreign direct investment (FDI) would still be the “lifebuoy” for the national economy in 2014.

GDP growth rate modest, inflation high

Vietnam’s GDP value in 2014 would be higher than 2013, but just by a little. The World Bank has predicted that the GDP may grow by 5.3 percent over 2012, while the growth rate would be just 0.1 percent higher the next year.

The prediction proves to be reasonable if noting that the ratio of the total investment capital of the society on GDP in 2014 would be some 30 percent, the same as 2013.

The GDP growth rate of around 5 percent is not a good result for a developing economy with young and profuse resources like Vietnam. The low growth rate would not help create enough jobs for young workers.

While the expected growth rate is modest, the inflation rate in 2014 is thought to be much higher than this year, because fiscal and monetary policies would be loosened to foster the growth. The global economy recovery, though at a slow pace, would also lead to the goods price increases, which would be a hard pressure on the domestic prices.

The Hong Kong and Shanghai Banking Corporation (HSBC) has predicted that the consumer price index (CPI) would increase by 8.3 percent next year, a big jump if compared with this year’s expected rate of 6.6 percent.

Vietnam dong would be depreciating slightly

The higher inflation rate projected for 2014 would make the local currency depreciate. The US FED is about to end the quantitative easing package, which would lead to the stronger greenback and result in the dong depreciation.

However, the FDI, ODA and not too big trade deficit would support the dong value. Therefore HSBC believes the dong/dollar exchange rate would stay at VND21,500 per dollar in 2014.

Another difficult year for domestic enterprises

A report showed that by the end of November 2013, nearly 55,000 businesses had got dissolved or stopped operation, the figure which is even higher than that of both 2011 and 2012.

The enterprises’ situation may not be considerably improved in 2014--once the biggest problems, including the market low demand, tightened credit, low competitiveness and frozen real estate market have still not been settled.

FDI will help develop economy

While the domestic economic sector would still be stagnating, FDI is believed to serve as the lifebuoy for the national economy.

Analysts have every reason to believe in the continued strong FDI flow in 2014. The cheap labor cost, the large market with 90 million consumers--the big benefits to be brought by trade agreements such as TPP and AEC would all support Vietnam in attracting FDI.

Especially, Vietnam would be able to attract more foreign investors from Japan and South Korea, which are considering choosing new investment destinations instead of China.

Bad debts would increase

Though the Vietnam Asset Management Company (VAMC) has been established, it has bought trillions of dong worth of bad debts so far.

The Circular No. 02, after some delay, would take effect again on June 1, 2014, which, with stricter requirements on debt classification, would lead to the sharp increase of bad debts.

More M&A deals to be made

There are many reasons that would encourage merger and acquisition (M&A) activities in 2014. The government has shown its stronger determination in the restructuring of state owned enterprises (SOEs).

Deputy Prime Minister Hoang Trung Hai has stated Vietnam would cut the number of SOEs by a half to 600 by 2015 and 300 by 2020.

Property market would remain frozen

Experts believe that the real estate market would be cool in 2014 due to the increasingly high supply and weak demand.

vietnamnet