Vietnam is forecast to have GDP growth rate of 5.7% in 2012, compared to the government’s target of 6.0-6.5%, HSBC Global Economics Research Team wrote in its Macro Asian Economics Q1/2012.

HSBC Global Research said:

Despite sluggish global growth and challenging domestic conditions, Vietnam’s growth momentum has been impressive. GDP expanded 6.1% y-o-y in 3Q 11 (versus 5.7% in 2Q 11) thanks to robust exports and domestic demand. We expect GDP growth of 5.8% in 2011 and 5.7% in 2012 (the government’s target is 6.0-6.5% for 2012).

Tightening measures earlier in 2011, which reduced credit and money supply, have negative affected growth. Investment is also expected to slow down in 2012 as a result of the credit squeeze; however, it will be buoyed by strong FDI inflows, which have been a reliable source of investment. Foreign investors are still interested in tapping into Vietnam’s burgeoning market, evidenced by steady FDI inflows in 2011.

Export growth has been another bright spot and is expected to expand in 2012, albeit at a slower pace. By value, heavy industrial products and light industrial and handicraft goods make up 83% of total exports; high growth in exports in 2011 were due to high demand for Vietnamese agriculture products, garments and crude oil, as well as a surge in commodity prices. Fuel and raw material production goods make up 61% of total imports, and machinery and instrument production goods makeup 29% of total imports.

Vietnam’s import-dependent exports will cause it to have trade deficits in the coming years. However, higher growth of exports relative to import growth has caused the trade deficit to narrow in 2011.

We expect exports to expand by 24% y-o-y in 2012 versus 34% in 2011. Still, high import demand should keep the trade deficit up.

Inflation has been high, rising from 12.2% y-o-y in January 2011 to 23.0% in August 2011 – a reflection both of expansionary policy and bottlenecks in the economy.

 

 

Source HSBC