Economy sees fragile recovery

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The economy is seeing green shoots as credit expands, export increases, and the stock market recovers, but the recovery is still fragile and the government needs to do more to ensure stable development, analysts say.

The government has made efforts to cut interest rates and reduce bad debts and inventories of goods, helping businesses recover and facilitate economic recovery, Cao Sy Kiem, chairman of the Vietnam Association of Small and Medium-Sized Enterprises, said. "But the recovery is not very robust."

Investors have returned to the stock market. Vietnam's benchmark VN-Index is poised to rally 12 percent by year-end, according to PXP Vietnam Asset Management. 

Trinh Nguyen, Hong Kong-based economist at HSBC, said: "What's supporting Vietnam's growth is its strong export sector, supported by a rise of FDI inflows, especially from Japanese investors.

"This helps offset the slowdown in domestic investment, supporting labor market."

Exports rose 14.7 percent year-on-year between January and August, according to the General Statistics Office.

"Vietnam has indeed made a U-turn and is more committed to stable growth," Nguyen said.

Production is likely to see growth in the coming months as inventories are down and global demand stages a possible recovery in the fourth quarter, she said.

But with the bad debt issue still unresolved, and private and public appetite for consumption low, growth rates should remain sub-trend, she said.

The setting up of the asset management company on July 26 should be considered a milestone since it is intended to resolve Vietnam's liquidity issues by purchasing half of the bad debts from the financial system.

But like other reforms, the company is symbolic as the two pillars knowing the level of bad debts and having enough funds for success are not yet adequate, Nguyen said.

Rising inflation remains a concern, she noted.

Input prices are rising again and this will continue to squeeze manufacturers since their leeway to raise prices is limited due to increased competition as well as still-sluggish domestic and external demand. The year-on-year increase of 7.5 percent in headline inflation the actual rise in the price index without excluding volatile items like food in August was primarily due to an increase in healthcare, education, and transportation costs.

Kiem said the main hurdles to a stable economic recovery are the tardiness in implementing short-term policies such as those to revive the frozen property market and reduce bad debts and goods inventories and lack of long-term policies.

"We only have overall plans for economic restructure, and are yet to map out regulations for their implementation," he said.

Nguyen said: "While the Vietnamese government has already come a long way in turning around the economy to ensure more sustainable growth, we believe further reforms are required before the economy fulfills its growth potential.

"Our baseline scenario is that the economy will grow at around a sub-trend pace of 5 percent over the next two years.

"Whether it accelerates subsequently is contingent on the quality of reforms carried out."

In the first two quarters of this year the government reported that the economy grew at 4.9 and 5 percent respectively.

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