 Viet Nam’s trade deficit was expected to halve this year and be less of a worry than the other challenges of 2009, Standard Chartered Bank economist Tai Hui told reporters in Ha Noi yesterday.
And tough economic times would test the Government even as "good" news made it more confident about its expansionary fiscal and monetary policy, he said.
The bank’s senior researcher for Southeast Asia described the narrowing of the trade deficit in January as really good news.
He also agreed with suggestions that Viet Nam should shift from the United States and European markets to the domestic market as export revenue dwindled.
But the shift would not be easy as producers would have to rewrite their business plans, he warned.
For example, they would have to replace their export-oriented produce to better suite the taste of Vietnamese customers.
The economist also suggested that Viet Nam focus on potential regional markets and seize all advantages to create food and beverage produce to compete with imports.
Viet Nam’s inflation would fall to a single digit by the middle of the year as the decline in oil, food, and rice prices kept inflation throughout Asia low, he said.
The low inflation would allow the State Bank of Viet Nam, as well as other central banks of the region, leeway to reduce interest rates.
Viet Nam’s prime rate of 7 per cent was likely to be reduced to help boost exports and the trade deficit.
The aggressive rate cuts and other measures to provide liquidity were expected to provide some relief but the headwinds from the global slowdown were likely to become the primary factor in Viet Nam’s economic performance.
Standard Chartered has forecast the Vietnamese dong will further depreciate against the dollar this year, but the decline will be orderly rather than volatile.
"The State Bank of Viet Nam has been very successful in managing forex market," said Tai Hui.
Foreign direct investment and remittances were likely to decline because of the recession in the developed world and the slowing job market – not only were international companies likely to rethink expansion, but their sources of funding were limited, he said.
The economist said: "It’s too early to adjudge the effectiveness of the package," when asked about the Government’s US$1 billion stimulus plan.
In its January report, Standard Chartered said it expected the key themes of the fiscal package to be infrastructure projects and protection for the unemployed.
The bank has also forecast that the economic contraction will last longer in Asia than the US and Europe.
It suggests regional countries link with each other, especially in monetary and fiscal policies, to ensure a stable financial market.
(Source: VNS)
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