Standard Chartered Bank recently released a report called GlobalResearch 2015 – The Year Ahead, Rekindling the Animal Spirit, which alsotakes a look at Vietnam's economic and financial outlook, growth, FDIprospects, trade and interest rate. Viet Nam News spoke with the bank'seconomist, Betty Rui Wang, about these issues.
Q: How do you see the prospects for the Vietnamese economy in 2015?
A:This year we expect Vietnam's GDP growth to accelerate to 6 percent,slightly higher than our previous forecast of 5.8 percent for 2014.Foreign direct investment and exports are likely to increase as well. Wealso expect some progress to be made on structural reforms in 2015, thefinal year of the country's five-year socio-economic development plan.
Weexpect FDI to gather pace this year given the country's rising profilein the global value chain. It has become a leading attractivedestination as investment costs in China have become higher and thusless attractive for investors. Multinational companies have expressed akeen interest in increasing investment in Vietnam thanks to thecountry's geographic advantage, low labour and operating costs and itsparticipation in regional trade pacts.
Exports are expected torecover. Traditional exports like textiles and footwear performed welllast year, reflecting Vietnam's established competitiveness in thesesectors. We expect traditional exports to remain robust, especiallygiven the country's involvement in the multilateral Trans-PacificPartnership trade agreement. The TPP should draw increased FDI, thoughnegotiations are likely to take time to finalise and restrictions may beplaced on the trade benefits to Vietnam under the pact. Export ofelectronics, now the country's biggest export item, will accelerate asFDI increases and more production lines start operation. Growth inelectronics slowed last year, partly as an unfavourable base effect andweaker-than-expected global demand affected performance. Vietnam hasbeen proactive in strengthening bilateral trade relations withneighbours other than China, which bodes well for the export outlook.
Inflationis unlikely to be a concern this year. Headline inflation fell to below3 percent last November and core inflation, excluding food and energyprices, has been below 4 percent since September. This trend is expectedto continue this year so we revise down our forecast to 3.4 percentyear-on-year from 4.7 percent.
We hope the State Bank of Vietnamremains accommodative as low inflation gives room for policy manoeuvre. A50bps (basis points) rate cut will take the policy rate to 6 percentthis year.
Fiscal policy is also likely to be accommodative asthe authorities' focus remains on promoting growth. We see that fiscalpolicy will remain supportive, especially of targeted sectors includingagriculture and SMEs.
Q: How do you think Vietnam's structural reforms are going?
A:Progress is expected in structural reforms. The Vietnam AssetManagement company is said to plan to adopt a new method for calculatingthe value of bad debts, stepping up its efforts to regulate debtpricing in the medium to long term. Stricter debt classification andprovisions will be implemented beginning this year, after a year ofdelay. These measures will be positive steps towards the necessaryregulation of the banking sector to rein in non-performing loans. PrimeMinister Nguyen Tan Dung has said that Vietnam aims to bring down theratio of bad debts to bank loans to 3 percent by this year's end fromthe current 4.17 percent.
We also expect the government speed upSOE reform. Progress was moderate last year. The Ministry of Finance hadoriginally planned to equitise around 200 SOEs in 2014, but only 75were equitised as of the first 10 months.
However, SOEequitisation is a positive step, we have to acknowledge. That is the wayto help improve SOEs' efficiency. Low efficiency is one of the majorissues for Vietnam's SOEs because it is sitting on a lot of resourcesbut performing poorly. I think privatisation is definitely a positivestep taken by the Government in terms of reforming SOEs. But at the sametime, there are still a lot of other issues, which the Government alsoneeds to address going forward. If it can continue with the commitmentand implement it alongside the equitisation process, that would bepositive for the whole economy in the longer run.
Q: How do you expect the interest rate trend to be this year?
A:There will be one more rate cut to come this year, probably of 50 basispoints. That will bring the key policy rate from 6.5 percent to 6percent. Why do we think the SBV should cut further? First, I thinkpolicy rate is an important policy tool to help the economy. Second, ifyou look at the current inflation trend, partly thanks to low global oilprices, Vietnam's headline inflation has dipped below 1 percent inJanuary, which hasn't been seen for a decade. That actually increasesthe real interest rate. So it will provide room for the central bank tocut further. I do notice that the central bank also said that they aregoing to adjust the lending rate or urge commercial banks to reduce thelending rate. I think that is a positive intention because, if we lookat credit growth, there is still room for it to grow further. Of course,demand on the ground is a very important factor affecting the creditgrowth. But on the other hand, we think there is still room for thecentral bank to manipulate the policy rate in terms of boosting creditgrowth and business activities.-VNA
Q: How do you see the prospects for the Vietnamese economy in 2015?
A:This year we expect Vietnam's GDP growth to accelerate to 6 percent,slightly higher than our previous forecast of 5.8 percent for 2014.Foreign direct investment and exports are likely to increase as well. Wealso expect some progress to be made on structural reforms in 2015, thefinal year of the country's five-year socio-economic development plan.
Weexpect FDI to gather pace this year given the country's rising profilein the global value chain. It has become a leading attractivedestination as investment costs in China have become higher and thusless attractive for investors. Multinational companies have expressed akeen interest in increasing investment in Vietnam thanks to thecountry's geographic advantage, low labour and operating costs and itsparticipation in regional trade pacts.
Exports are expected torecover. Traditional exports like textiles and footwear performed welllast year, reflecting Vietnam's established competitiveness in thesesectors. We expect traditional exports to remain robust, especiallygiven the country's involvement in the multilateral Trans-PacificPartnership trade agreement. The TPP should draw increased FDI, thoughnegotiations are likely to take time to finalise and restrictions may beplaced on the trade benefits to Vietnam under the pact. Export ofelectronics, now the country's biggest export item, will accelerate asFDI increases and more production lines start operation. Growth inelectronics slowed last year, partly as an unfavourable base effect andweaker-than-expected global demand affected performance. Vietnam hasbeen proactive in strengthening bilateral trade relations withneighbours other than China, which bodes well for the export outlook.
Inflationis unlikely to be a concern this year. Headline inflation fell to below3 percent last November and core inflation, excluding food and energyprices, has been below 4 percent since September. This trend is expectedto continue this year so we revise down our forecast to 3.4 percentyear-on-year from 4.7 percent.
We hope the State Bank of Vietnamremains accommodative as low inflation gives room for policy manoeuvre. A50bps (basis points) rate cut will take the policy rate to 6 percentthis year.
Fiscal policy is also likely to be accommodative asthe authorities' focus remains on promoting growth. We see that fiscalpolicy will remain supportive, especially of targeted sectors includingagriculture and SMEs.
Q: How do you think Vietnam's structural reforms are going?
A:Progress is expected in structural reforms. The Vietnam AssetManagement company is said to plan to adopt a new method for calculatingthe value of bad debts, stepping up its efforts to regulate debtpricing in the medium to long term. Stricter debt classification andprovisions will be implemented beginning this year, after a year ofdelay. These measures will be positive steps towards the necessaryregulation of the banking sector to rein in non-performing loans. PrimeMinister Nguyen Tan Dung has said that Vietnam aims to bring down theratio of bad debts to bank loans to 3 percent by this year's end fromthe current 4.17 percent.
We also expect the government speed upSOE reform. Progress was moderate last year. The Ministry of Finance hadoriginally planned to equitise around 200 SOEs in 2014, but only 75were equitised as of the first 10 months.
However, SOEequitisation is a positive step, we have to acknowledge. That is the wayto help improve SOEs' efficiency. Low efficiency is one of the majorissues for Vietnam's SOEs because it is sitting on a lot of resourcesbut performing poorly. I think privatisation is definitely a positivestep taken by the Government in terms of reforming SOEs. But at the sametime, there are still a lot of other issues, which the Government alsoneeds to address going forward. If it can continue with the commitmentand implement it alongside the equitisation process, that would bepositive for the whole economy in the longer run.
Q: How do you expect the interest rate trend to be this year?
A:There will be one more rate cut to come this year, probably of 50 basispoints. That will bring the key policy rate from 6.5 percent to 6percent. Why do we think the SBV should cut further? First, I thinkpolicy rate is an important policy tool to help the economy. Second, ifyou look at the current inflation trend, partly thanks to low global oilprices, Vietnam's headline inflation has dipped below 1 percent inJanuary, which hasn't been seen for a decade. That actually increasesthe real interest rate. So it will provide room for the central bank tocut further. I do notice that the central bank also said that they aregoing to adjust the lending rate or urge commercial banks to reduce thelending rate. I think that is a positive intention because, if we lookat credit growth, there is still room for it to grow further. Of course,demand on the ground is a very important factor affecting the creditgrowth. But on the other hand, we think there is still room for thecentral bank to manipulate the policy rate in terms of boosting creditgrowth and business activities.-VNA
