The headline seasonally adjusted Purchasing Managers’ Index (PMI) of Vietnam – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – rose to 53.1 in April from 51.3 in the previous month, according to a recent report released by HSBC Bank and Markit Economics Limited. This was also the highest level since the index was launched in 2012. According to experts, the outstanding performance was resulted from Vietnam’s reviving economy, particularly the manufacturing sector.
New orders on the rise
Ms Trinh Nguyen, economist at HSBC, said the manufacturing sector is doing the heavy lifting in Vietnam. In addition, strong commitments of the Government and relevant agencies to industry improvement will provide policy leverage to create new motivations for Vietnam’s economy. Accordingly, in the short term, the manufacturing sector will have outstanding development with the support of increased investment. Domestic demand will recover when credit growth climbs.
Specifically, new export orders rose sharply in the past two months, particularly from the US and eurozone countries. As a result, merchandise output is expected to increase sharply in the first quarter and the second quarter of 2014. As new orders rose, Vietnamese manufacturing firms to increase their purchasing activity to meet export demands. “Hot” items are now apparels, footwear and mobile phone accessories, which are expected to further quicken in the second half of 2014 when more investments started operation, according to experts.
In addition to manufactured merchandise, Vietnam’s agricultural sectors also benefited from increased commodity prices on international markets. Coffee was a typical example. When Brazil, a key coffee powerhouse, is facing with spreading drought, coffee prices are being pushed up. Rice had good demand this year thanks to strong demand from the Philippines. However, some experts also warned that Thailand is likely to lower stockpiled rice into the world market in the second quarter of 2014. This will also certainly affect Vietnam’s rice export value.
Banks lend a helping hand to the market
According to economic experts, recent positive actions from the State Bank of Vietnam have effectively helped the economy to regain growth momentums. Its credit policies also helped businesses to feel more confident and bold to make investments to improve the business environment. Specifically, according to its plans, the SBV is working with five commercial banks to build a real estate support package and reduce interest rates to spur lending growth. Consequently, credit growth reached 1 percent after incurring a negative growth in the first quarter of 2014. The SBV is also building the foundation through which bad debts that Vietnam Asset Management Company (VAMC) can sell to foreign investors. Perhaps, bad debt may not be solved immediately but it is unlikely to increase because of weak consumer demand.
In addition, HSBC was upbeat about Vietnam’s economic development prospects in the medium term. Specifically, the effectiveness and practicality of key economic sectors have been improved. For instance, prices are being gradually regulated under the market mechanism and healthy competition to encourage production and minimise losses in some sectors like electricity. Ineffective public investment projects will be replaced by projects with clearer objectives.
HSBC economists noted that April inflation eased but it remained low in history. Even when domestic manufacturing activity is restored by such measures as deposit interest rate cut and OMO interest rate cut to spur lending credit growth, inflation is forecast to increase very slightly till the end of the year. And assuming that social services costs and electricity prices will increase in August and September, this year’s inflation will rise just 5.6 percent, according to HSBC economists. Food prices are forecast to make a slight gain when rice prices remain low.
HSBC economists noted that when the Trans-Pacific Strategic Economic Partnership Agreement (TTP) and the Vietnam – EU Free Trade Agreement are signed and put into effect, tax rates on Vietnam’s goods into key markets like the US and the EU will be reduced, thus helping its products to be more competitive. In addition, a series of institutional reform measures such as non-tariff issues, infrastructure improvement, eradication of complex administrative measures, reorganised supply chain for rice and textile, and energy production increase are the prerequisite for Vietnam’s economic development in the medium and near terms.
Anh Phuong
Đăng ký: VietNam News
