Nov. 28, 2010 -
PRLog -- Vietnam's economy recorded an impressive 6.3% year-on-year real GDP growth in Q210 and July economic indicators suggest that domestic demand will be the main driver of growth in H210. We expect strong private consumption growth and infrastructure investments to remain robust in H210 and 2011. Over the long term, Vietnam's growing political influence in the Association of Southeast Asian Nations is also expected to open up opportunities for exports to the region, especially Cambodia and Laos. However, we are growing increasingly concerned over the threat of higher inflation as well as widening current account and budget deficits going forward. Our bearish outlook for a slowdown in the US and EU also compels us to pencil in relatively weak real GDP growth of 6.0% and 5.5% for 2010 and 2011 respectively. We expect Vietnam's political influence within the Association of Southeast Asian Nations (ASEAN ) to grow significantly over the coming years, parallel to its ambition to become an economic powerhouse in South East Asia. Bilateral relations between Vietnam and its neighbouring countries, in particular Cambodia and Laos, will continue to play a huge part on the government's agenda. We see Vietnam's move to tighten its relationship with Cambodia and Laos as not only due to the two countries' increasing potential for economic growth, but also because Vietnam is in a perfect position to leverage on its relationship with these countries to boost its political influence in the bloc. T he government's aggressive growth target for 2010 and 2011 are likely to come at the expense of higher inflation and persistent budget deficits. The State Bank Of Vietnam remains in an accommodative stance in spite of inflation remaining above 8.0%, underlining the central bank's weak credibility when it comes to inflation targeting. As such, we believe the risk of a sharp pick-up in consumer price inflation remains going forward. Shrinking foreign reserves are also raising risks that the government may face difficulties servicing debt denominated in foreign currencies, which led to a downgrade of its foreign currency debt by Fitch Ratings. With the construction of a number of large infrastructure projects under way, growth for the infrastructure industry is set to remain strong in 2010 and 2011. Over the longer term, the total value of the infrastructure industry is expected to grow steadily, rising from US $3.0bn in 2010 to US $6.4bn in 2014, according to our Infrastructure team's forecasts. We believe the government's stance towards encouraging public-private investments will also open up opportunities for foreign companies to invest in the country's growing need for infrastructure development. The government's support for infrastructure development in Laos also presents opportunities for companies to expand into the neighbouring country.
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