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Vietnam Business Forecast Report Q4 2014

  • August 2014
  • -
  • Business Monitor International
  • -
  • 49 pages

Core Views
The Vietnamese government will continue to face a myriad of challenges over the coming years, and despite China's recent decision to move its oil rig out of the disputed waters, the relationship between Hanoi and Beijing will remain at the centre of foreign policy. Meanwhile, we expect Vietnamese authorities will continue to also focus on economic and business environment reforms in an effort to stimulate growth and attract foreign direct investment. We have downgraded Vietnam's growth forecast from 5.9% to 5.7% for 2014 on the back of weaker-than-expected H114 growth figures, combined with the risk of an economic backlash from China. That said, we have maintained our forecast for growth to come in at 6.4% in 2015, and we continue to believe that the economy will be driven by growth-supportive government policies, as well as a strong outlook for foreign investment and exports.

Vietnam's balance of payments will continue to strengthen over the coming years, and could eventually post a surplus in both the current and financial accounts – a sign of improving macroeconomic performance and stability. Such a scenario would likely result in a strengthening of the currency. That said, downside risks emanate from weaker-than-expected global growth, or a rapid rise in bond yields on the back of the end of the US Fed's QE programme. The monetary authorities in Vietnam will maintain a dovish bias following the cut to the benchmark interest rate in March and the minor devaluation of the Vietnamese dong in June. As such, we continue to see downside risks to our forecast for interest rates to end the year unchanged at 6.50%, particularly if growth disappoints in the
second half of the year.

We continue to forecast a slow improvement in Vietnam's fiscal accounts over the coming years as tax collection rises and expenditure growth is reined in. This will see the government budget deficit narrow over the forecast period. Given these dynamics, we forecast a narrowing of the fiscal deficit from 4.7% of GDP in 2013 to 3.8% in 2014 and 2.9% in 2015. One risk however, is the potential for an increase in military spending given the ongoing dispute with China.

Table Of Contents

Vietnam Business Forecast Report Q4 2014
Executive Summary 5
Core Views...5
Key Risks To Outlook5
Chapter 1: Political Outlook.. 7
SWOT Analysis 7
BMI Political Risk Ratings.. 7
Domestic Politics. 8
Stability For Now, But China Risks Loom...8
The Vietnamese government will continue to face a myriad of challenges over the coming years, and despite China's recent decision
to move its oil rig out of the disputed waters, the relationship between Hanoi and Beijing will remain at the centre of foreign policy. We
expect Vietnamese authorities will continue to also focus on economic and business environment reforms in an effort to stimulate growth
and attract foreign direct investment.
TABLE: Political Ove rview 8
Long-Term Political Outlook. 10
Key Political Challenges Over The Coming Decade....10
Vietnam's biggest political question over the coming decade is whether one-party rule under the Communist Party of Vietnam (CPV) will
face growing calls for democratisation, as was the case in other major South East Asian countries. While our core scenario envisages
the CPV transforming itself into a technocratic administration, it faces major economic challenges which if mismanaged could lead to
widespread unrest. On the foreign policy front, we expect an increasingly powerful China to drive Vietnam further into the camp of Asian
nations with close relations with the US.
Chapter 2: Economic Outlook.. 13
SWOT Analysis... 13
BMI Economic Risk Ratings.. 13
Economic Activity... 14
Growth Downgrade, But Still Strong Outlook Ahead...14
We have downgraded Vietnam's growth forecast from 5.9% to 5.7% in 2014 on the back of weaker-than-expected H114 growth
numbers, combined with the risk of an economic backlash from China. That said, we have maintained our forecast for growth to come
in at 6.4% in 2015, and we continue to believe that the economy will be driven by growth-supportive government policies, as well as a
strong outlook for foreign investment and exports.
TABLE: Economic Activity14
Fiscal Policy... 16
Fiscal Position To Continue Improving16
We continue to forecast a slow improvement in Vietnam's fiscal accounts over the coming years as tax collection rises and expenditure
growth is reined in. This will see the government budget deficit narrow over the coming years. One risk however, is the potential for an
increase in military spending given the ongoing dispute with China.
TABLE: Fiscal Policy16
Monetary Policy . 18
Central Bank To Maintain Growth Bias18
The monetary authorities in Vietnam will maintain a dovish bias following the cut to the benchmark interest rate in March and the minor
devaluation of the Vietnamese dong in June. As such, we continue to see downside risks to our forecast for interest rates to end the
year unchanged at 6.50%, particularly if growth disappoints in the second half of the year.
TABLE: Monetary Policy..18
Balance Of Payments... 19
Remaining Stable19
Vietnam's balance of payments will continue to strengthen over the coming years, and could eventually post a surplus in both the
current and financial accounts, a sign of improving macroeconomic performance and stability. Such a scenario would likely result in
a strengthening of the currency. That said, downside risks emanate from weaker-than-expected global growth, or a rapid rise in bond
yields on the back of the end of the US Fed's QE programme.
TABLE: Current Account.20
Vietnam Q4 2014
Chapter 3: 10-Year Forecast 23
The Vietnamese Economy To 2023 23
A New Focus On Quality Growth23
Vietnam's growth prospects over the next decade remain positive in our view, as reflected by our bullish forecasts for real GDP growth
to average 6.2% over 2014-2023. We foresee a more stable economic environment, with inflation averaging a benign 4.9 % and the
current account remaining in surplus averaging over the forecast period.
TABLe: Long-Term Macroeconomic Forecasts...23
Chapter 4: Business Environment 27
SWOT Analysis... 27
BMI Business Environment Risk Ratings 27
Business Environment Outlook. 28
Institutions .... 28
TABLE: BMI Business And Operation Risk Ratings....28
TABLE: BMI Legal Framew ork Rat ing ...29
Infrastructure. 30
TABLE: Lab our Force Qual ity..31
Market Orientation... 32
TABLE: Asia Annual FDI Infl ows ....32
TABLE: Trade And Investment Ratings ....34
Operational Risk. 35
Chapter 5: Key Sectors... 37
Pharmaceuticals and Healthcare... 37
TABLE: Pha rmaceut ical Sales , Hist orical Data And Forecasts 38
TABLE: Healthca re Expe nditu re Trends , Hist orical Data And Forecasts 40
TABLE: Gove rnme nt Healthca re Expe nditu re Trends , Hist orical Data And Forecasts ... 40
TABLE: Private Healthca re Expe nditu re Trends , Hist orical Data And Forecasts ... 40
Telecommunications.... 41
TABLE: Telec oms Sect or - Mobile - Hist orical Data and Forecasts . 42
TABLE: Telec oms Sect or - Wirel ine - Hist orical Data and Forecasts .. 43
Other Key Sectors... 45
table: Autos Sector Key Indicators..45
table: Food and Drink Sector Key Indicators....45
table: Defence and Security Sector Key Indicators45
table: Infrastructure Sector Key Indicators..46
table: Oil and Gas Sector Key Indicators..46
table : Freight Ke y Indicat ors46
Chapter 6: BMI Global Assumptions. 47
Global Outlook.... 47
US Revision Drags Down Forecast.47
Table: Global Assumptions47
Table : Devel oped States , Real GDP Growt H, %..48
Table : BMI VERSUS BLOO MBERG CON SENSUS REAL GDP GRO WTH FOR ECASTS, %.. 48
Table : Eme rging Markets , Real GDP Growth , %.49

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