President of global consulting firm Ernst & Young in Asia Pacific, Lou Pagnutti said that Vietnam will face many challenges of macroeconomic instability in 2012, though these challenges have eased compared with last year.

He also predicted that the currency of Vietnam will likely see its value depreciate by 3% compared to the US dollar this year.

In an interview with Saigon Economic Times on February 21 when he visited Vietnam, Lou said that Vietnam's inflation will be around 11.5% this year, lower than the 18.6% rate estimated by Ernst & Young for 2011.

Inflation is being affected by the upward pressure on energy commodities such as electricity, coal, oil and the surge in public sector wages, Lou said.

"We see inflationary pressures are still large, but have been lower than in 2011," he said.

This economist predicted that Vietnam’s dong will depreciate by 3% this year, at 21,700 dong per US dollar.

"The Government of Vietnam must hold down the dong, not let the currency depreciate too much, affecting the interest rate policy. Furthermore, interest rates must be maintained at reasonable levels to keep up domestic consumption in the context of exports that are facing a lot of difficulties," he warned.

Lou said that labour costs in Vietnam are increasing because of high inflation, which has made business activities of enterprises increasingly difficult.

Explaining why inflation in Vietnam was higher than the average 3% of ASEAN, or nearly 6% in China last year as countries were affected by input price increases, Lou said that Vietnam had many disadvantages.

He said: "Vietnam is at the level of development unlike other ASEAN countries and China. Vietnam is facing macro challenges such as fiscal deficit, current account deficits, poor investment performance, and others, which are these elements making Vietnam's economy more vulnerable”.

In the recently published report, Ernst & Young forecast the gross domestic product (GDP) growth of Vietnam will be about 6% this year and will reach 6.5 - 7% after 2013.

But Lou said that many international factors such as Iran, North Korea, and the recovery of the euro area will affect this forecast.

Source Vietbiz24