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WB Lead Economist remarks VN’s recent economic indicators

VGP - At the threshold of the Lunar New Year, World Bank Viet Nam’s Lead Economist Deepak Mishra talked with VGP about the January economic indicators and his vision for Viet Nam’s economy in 2013.

February 09, 2013 7:56 PM GMT+7

Illustration photo
Latest figures by the General Statistic Office showed that Consumer Price Index (CPI) of January 2013 went up by 1.25% month-on-month and by 7.07% year-on-year, raising the worry that inflation might come back later in the year.

However, Deepak Mishra opined that one month is too short a time span to make any meaningful inference on the health of an economy.

In particular, 2012’s Tet holiday fell in January, while this year it is being celebrated in February, “making January to January comparison problematic”.

Especially, the January economic indicators were also affected by seasonal factors as people spend more on shopping during Tet months compared to other months in a year.

“Since such increase in inflation is due to seasonal spending patterns, it is less of a worry than a similar increase in inflation during non-Tet period,” Mr. Mishra claimed.

Taking into account the two aforementioned factors, the Lead Economist emphasized that year-on-year inflation is steadily rising and is likely to continue to increase during the next few months, largely on account of significant increase in liquidity and policy rate cuts in 2012.

However, while inflation went up, the economist remarked, growth in domestic consumption remains sluggish and pace of economic recovery is weak.

According to Mr. Mishra, this phenomenon was the result of underlying causes including the cost-push inflation and excess liquidity going towards less productive sectors.

In fact, January 2013 saw sharp price increases in sectors such as healthcare and medical services, petroleum products and educational services.

Especially, excess liquidity in the system is being diverted to less efficient enterprises and speculative activities, which could result in higher asset price inflation.

Moreover, there is a significant mismatch between high growth in liquidity and slower growth in output, which is contributing to higher inflation.

As 2013’s CPI is targeted at 6 to 6.5%, many local experts expressed concern about the feasibility of the target.

The Lead Economist concurred with the local experts.

“We worry that inflation rate could exceed 10% in the first half of 2013, though should fall to single-digit by year end if appropriate macro-economic policy stance is maintained.” He indicated that the World Bank forecasts inflation to be 8% during 2013, slightly higher than the government’s projection.

Nevertheless, Mr. Mishra remarked that export continues to do well despite an uncertain global economic environment, making Viet Nam a two-speed economy with a slow-moving domestic economy and a robust export sector, as previously described in World Bank’s Taking Stock report 2012.

Mr. Mishra felt that the government has done a creditable job of diagnosing the key challenges facing the country, the “binding constraint to growth,” but has been less successful in designing appropriate policy responses and implementing them.   

The Lead Economist opined that Resolution 02/NQ-CP, recently issued to provide support for SMEs and the real estate sector, “does not fully address, nor was it meant to address, the structural problems facing the economy”.

To the representative of the WB, the triple restructuring agenda, namely that of SOEs, credit institutions and public investment, captures the three most important constraints holding back Viet Nam’s economy.

The economist called for more emphasis on disclosure, transparency and corporate governance reforms at the enterprise level.

“Nevertheless, progress is being made and we hope to see accelerated resolution of bad debt problems and credible restructuring of distressed enterprises in 2013,” said Mr. Mishra.

By Thuy Linh