VietNamNet Bridge – Vietnam's economy is starting the year ‘all guns blazing’ and may outperform last year’s growth, showing that the government's efforts to tame inflation and regain macroeconomic stability are sound and timely.

Inflation for the January-February period has been estimated at 2.4% while economic growth tallied in at above 7%, according to Chairman of the National Financial Supervisory Commission Vu Viet Ngoan.

Ngoan added that many investors are reporting that they are optimistic about the prospects for a profitable year and particularly upbeat on the upturn in consumer trust.

Optimistic figures

In its report delivered at a March Cabinet meeting, the Ministry of Planning and Investment (MPI) showed stable increases in domestic consumption and industrial value for the two-month period.

The overall index of industrial production (IIP) exploded 12%on-year. The mining industry enjoyed a growth rate of 9%, while the manufacturing sector’s growth jumped 12.9%.

Most recently, the Hong Kong and Shanghai Banking Corporation (HSBC) has reported that the Purchasing Managers’ Index™ (PMI™) of Vietnam continued to rise in February.  

The upturn in operating conditions stemmed primarily from strengthened growth in output and new orders. The manufacturing sector benefited from lower input prices, especially declining fuel prices, resulting in a decrease in production costs.

The number of new orders has gone up for six months in a row, while product quality has improved considerably together with competitive prices.

High hopes for credit growth

Minister of Planning and Investment Bui Quang Vinh said the sharp decline in inflation does not mean deflation as the figure is attributed to a strong decrease in fuel prices on both the domestic and global markets. As a result, prices in several sectors, including transport and construction have been consistently dropping.

However, Vinh said, the State maintains strict management on prices of food and energy, as well as healthcare and education services which saw a light increase of less than 0.6%.

Vietnam’s deflation has been reflected in the excess supply over demand that has posed challenges to domestic production. In January and February 2015, the manufacturing index surged 10.7%, much higher than a year earlier (6.2%), he revealed.

Governor of the State Bank of Vietnam (SBV) Nguyen Van Binh said apart from low fuel prices, an abundant supply of goods is also cited as main reason lowering the CPI in the past two months.

Binh suggested creating more favourable conditions for businesses by loosening monetary policy on credit growth and reducing interest rates for medium and long terms.

Deputy Minister of Planning and Investment Cao Viet Sinh said it is essential to adjust the monetary policy in a more flexible manner to realize the set target of achieving an outstanding credit debt growth of 13-15%/year and inject more investment in the production sector.

Moreover, priority should be given to small-and-medium-sized enterprises (SMEs), not only those operating in the real estate and stock market, he underscored.

"With what it has achieved this year, I believe Vietnam has a better ground for more sustainable economic growth in the years ahead, though a high ratio of bad debt in the banking system will remain a headache for the government," economist Duong said.

Analysts said this year's growth was partly due to the government's efforts to boost investment efficiency and gain economic stability, as well as an increase in foreign direct investment.

He said the government appears to be better at controlling inflation, and noted that the Vietnam bank lending interest rate and currency relative to the US dollar have been stable.

VOV