NFSC optimistic about Vietnam's macroeconomic situation.
The National Financial Supervisory Commission of the Socialist Republic of Vietnam (NFSC) released a report on Vietnam's economy in March regarding the first quarter of 2015 and, via analysis of economic growth cycles, the agency has suggested that the economy is recovering strongly.
This agency indicated that domestic production continued to increase in both aggregate supply and demand. The GDP for 2015 is expected to increase by over 6.5 per cent while inflation can only rise by about 3.5 per cent, creating a platform to manage the pricing of commodities.
Good signs from beginning
Economic growth continued to recover strongly in the first quarter with GDP increasing to 6.03 per cent. This is the highest GDP growth in the first quarter in the last 5 years. GDP growth in the first quarter of 2015 was even higher than the fourth quarter of 2014 (6.62 per cent to compare with 6.27 per cent).
On this basis, the NFSC evaluated GDP growth over the whole year will be better than 2014 as both aggregate supply and demand are being increased. Aggregate demand, represented by total retail sales of consumer goods and revenue from service consumption for the first quarter, increased 9.2 per cent, significantly higher than the 5.1 per cent growth in the same period of 2014. Demands of invest also increase when credit of first quarter represented by credit outstanding balance of country increase 1.25 per cent (significantly higher than negative 0.57 per cent in the same period 2014).
Aggregate supply increased because of a decrease in input costs. There was also a Global Competitiveness Index increase of two ranks from 70th (2013) to 68th (2014-2015). Therefore, economic productivity has been boosted and there are signs of long term growth. This economic improvement partly covers losses in the State Budget due to a decreasing oil price. Total accumulated State Budget revenue in the first quarter reached VND226 trillion ($10.46 billion), an increase of 10.03 per cent on the same period of 2014.
"With the positive signs above, excluding the possibility of a crude oil price decrease to US$40 per barrel, GDP growth could feasibly reach 6.5 per cent, higher than the plan of 6.2 per cent", according to the report.
Despite the positive signs enterprises face a number of difficulties, especially small and medium-sized enterprises (SMEs). As the report shows, a number of enterprises have faced temporary termination, an increase of 14.2 per cent from the same period last year. 94.2 per cent of these were small businesses.
Moreover, the price of electricity rose putting pressure on manufacturing sectors, especially those relating to construction such as steel and cement.
Regarding inflation, based on analysis of aggregate demand, the NFSC estimates inflation of 3.5 per cent in 2015. With food and energy pricing in the global market expected to drop in 2015, the ability to achieve the target of 5 per cent overall inflation will depend largely on the level of electricity price adjustment. The agency also estimated an electricity price increase of 7.5 per cent will increase inflation in 2015 by approximately 0.5 percentage points. With decreasing inflation forecasts, commodity prices can still be adjusted. Furthermore, low inflation also facilitates reduction in interest rates. However, interest rates will be under pressure from factors such as government bond issuance, currency exchange fluctuations and slow growth in exports. Meanwhile, interest rates have to be maintained for a stable market.
Continue to improve the mechanisms and policies
Based on the analysis of the macroeconomic situation, to achieve the economic goals set out, the NFSC suggests that managing the price of commodities as well as interest rates this year should be considered to keep inflation in check. Although production and trade seem to be on the up, they are still seeing difficulties, especially for SMEs. Solutions proposed by the Government from the beginning of the year in the form of Resolution No. 19 / NQ-CP are a necessary step in the right direction. Besides, in terms of the decline in global commodity prices, Vietnam should expanse the markets to ensure export growth with active negotiations necessary to take advantage of free trade agreements.
NFSC also proposed better coordination of fiscal policies to ensure better aggregate supply of credit to the economy. From now until the end of the year there should be further promotion of investment disbursement by the State. At the same time, based on changes in inflation, interest rates should be adjusted and everything possible done to keep exchange rates stable to ensure liquidity for the banking system and support government bond issuance.