The economy is gradually stabilizing, but risks moving sideways for years unless structural bottlenecks are addressed, HSBC has said.
The bank's recent economic outlook report, titled "Not Quite There Yet," says after changing its strategy of favoring fast growth over stability, the country has made some progress, but it needs to improve, education, urban infrastructure, financial market, supply chains between foreign and domestic private firms, and energy and transport systems, and agriculture.
The bottlenecks in these sectors have be cleared, it says.
The government has not fundamentally changed its priority, with the recent semi-annual National Assembly session ending with little indication of reducing the dominance of state firms in the economy, it points out.
This "status quo" of attaching the foremost strategic importance to the state-owned sector will slow the country's reforms, it fears, adding that few signs of meaningful reforms are visible.
The purchasing managers' index, the seasonally adjusted analysis of manufacturing sector released by the bank, fell to 50.3 in November from 51.5 the previous month. A reading above 50 indicates expansion.
But the index painted "a picture of fragile stability" for the economy.
The categories of "new orders," "new export orders," and "output prices" saw contractions.
The slowdown of consumption and investment was necessary to cool down an overheating economy but came at a cost of output loss and the survival of small and medium enterprises, HSBC said.
"Employment" was a bright spot with a higher pace of growth from October. Higher inflows of foreign investment resulted in stronger demand for semi-skilled workers and boosted exports, it said. Last month exports rose 18.9 percent year-on-year after growing 22 percent in October.
The year's trade deficit has been estimated at US$95 million as of November end, and HSBC expected the country to post a small trade surplus this year. It also said due to rising remittances, the current account would also be in surplus, supporting the dong.
While the current situation is "a sharp departure" from high trade deficits, high inflation, and currency devaluations, the government should not be complacent, it warned.
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