“In spite of encountering difficulty arising from high inflation and the economic growth slowdown, Vietnam has eight reasons to keep continued strong growth in medium and long term,” said Mr Tai Hui, senior researcher of Standard Chartered in Southeast Asia.
Could you tell the reasons that you have said that the Vietnamese economy will overcome difficulty and keep up its growth in the coming time?
There are eight reasons for the continued development of Vietnam. First of all, Vietnam has political stability. According to the World Bank’s report, Vietnam is only behind Singapore and Brunei among 10 ASEAN countries in terms of socioeconomic stability.
Second, Vietnam is moving up in tune with the globalisation process and it is one of the most quickly opening economies in Asia.
Third, Vietnam is enjoying benefits from the entry to ASEAN and the growth of China.
Fourth, Vietnam is considered a destination to reduce risks in China. Investors, especially Japanese, are paying attention to this because Vietnam is emerging as one of the most ideal alternatives with abundant labour force, low labour cost, better investment environment, incentives and no risk of terrorism.
Fifth, Vietnam has a young and dynamic population. The quality of Vietnamese human resources is good. Although the salary level in Vietnam is low in comparison with regional countries, the working skill and literacy rate of Vietnamese workers is very high. However, Vietnam still lacks professionals.
Sixth, consumption will soar in the coming years.
Seventh, Vietnam has profuse capital sources.
Finally, Vietnam can acquire experience from regional countries to avoid risks and introduce sound policies.
Should consumption growth factors be reviewed as demand decreased significantly due to escalating inflation since the middle of 2007?
In my opinion, this is a short-term factor. We use equivalent purchasing power indicators to eliminate inflation impacts and make comparisons with other nations.
Our calculations showed that the purchasing power in Vietnam may grow 9 - 10 per cent per annum in the next six years. By 2025, it may reach triple the current size.
Another method to measure the purchasing power of Vietnamese people is to base on the US$1,000 benchmark. When per capita GDP surpasses US$1,000, the purchasing power will increase and consumers will be able to buy other products apart from essentials. Another potential source for increasing purchasing power in Vietnam is the consumption finance.
The database about consumption finance has not been sufficient so far. If we consider the macroeconomic level, the savings ratio in Vietnam is rather high in comparison with regional countries and the ratio is increasing. The ratio augmented from only 3 per cent in 1990 to above 30 per cent in 2006.
Savings can be put into investment aside from consumption spending. The savings ratio is considered a measurement of potential purchasing power in Vietnam.
However, Vietnam is facing big challenges at present from escalating inflation, high trade deficit and economic slowdown.
Recent economic statistics implied a worse outlook. The economic growth has slowed, inflation already amounted to 20 per cent in the first three months this year, the trade deficit has been widened and the VN-Index is now the weakest in the region, possibly the world.
Although we are optimistic about the economic outlook of Vietnam, we reaffirm that Vietnam is one of the most open economies in the region. But the slowdown of the US economy and its impacts on Asian markets will have a negative impact on Vietnam.
Like other regional countries, the Vietnamese Government and the State Bank of Vietnam will have to deal with the dilemma: high inflation and economic slowdown.
With high inflation, we think that Vietnam should focus on taming inflation, and at least in the near term it must accept lower economic growth.
Foreign capital flows from various channels, such as FDI, indirect investment capital, overseas remittance and ODA, may surpass US$30 billion in 2008. This is a driver to develop the economy but it can also be a drawback because of the frequent sudden changes in foreign capital flows.
A small change in the domestic economy may also lead to a sudden change to these capital flows.
The government and the central bank still need to tighten control over the monetary market to reduce pressure on and from inflation.
The trade deficit is also a big challenge. It may increase to a new record in 2008, from US$12.4 billion in 2007 to US$20 billion. With a widening and long term trade deficit, a change of capital flows could have strong impacts on the Vietnamese financial market.
This requires the government to pursue a reliable monetary policy and reform the process to consolidate the confidence of investors to maintain growth.
SGTT
Vietnamese
