Growth dampened due to 'divide' between local, external demand: ANZ

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Growth dampened due to 'divide' between local, external demand: ANZ

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The lower-than-expected economic growth of 4.96 percent in the first quarter has shown the sharp contrast between domestic and external demand in Vietnam, ANZ bank said in its quarterly report.
Despite posting a two-year high for first-quarter growth, the rate was lower than ANZ’s expectation of 5 percent, the report, themed “Vietnam: a Tale of Two Demands,” said.
That shows recovery is steady but still at a slow pace and has emphasized the “great divide” between domestic and external demand, it said.

Although domestic demand is improving steadily, its rise remains below the trend. Weak local consumption has resulted in an easing inflation with a marginal rise of consumer prices last quarter, according to the report.

ANZ forecast that inflation would be likely to be below its previous forecast of 7.0-7.5 percent for this year if the government’s planned expenditure on infrastructure fails to lift domestic demand in the second half of 2014.

It saw the central bank’s recent move to cut policy refinancing rate by 50 basis points to 6.5 percent as having a “limited” effect on lending.

High levels of bank bad debts is also holding back demand. Banks remain reluctant to extend loans which is evidenced by the low credit growth of 0.01 percent in the first quarter, the report said.

Delays in solutions to bad debt would keep domestic growth below potential, it said.

The 12-percent credit growth last year was achieved thanks to a credit surge in December on the back of temporary solutions set by the central bank, ANZ said, warning that if similar solutions are absent later on this year, bank would be unlikely to reach this year’s target of 12-14 percent.

On the other hand, the report acknowledged the strong growth of external demand.

Thanks to this, export-oriented industries, with a support from strong foreign investments, are strengthening Vietnam’s current account.

The trade surplus of US$1 billion in the first quarter contributed to the stability of the foreign-exchange market, it said, adding that the stable dong has enabled the central bank to further shore up its foreign reserves.

The State Bank of Vietnam reported that reserves rose by $7.7 billion in the first quarter. It does not publish data on the reserves.

 

ANZ retained its previous growth forecast of 5.6 percent and 5.8 percent in 2014 and 2015.

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