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Vietnam Country Risk Report Q2 2015

Vietnam Country Risk Report Q2 2015

Core Views

The Communist Party of Vietnam (CPV)'s 12th National Congress,which will convene in January 2016, will maintain current pro-growtheconomic policies, but eschew political liberalisation. One of the CPV'sbiggest challenges will be cracking down on corruption. Meanwhile,the emergence of a new generation of CPV officials could lead to riftswith the old guard over the pace of reform, leading to policy confusion.

We expect continued strong foreign direct investment (FDI), healthyexport growth and ongoing efforts by the government to improvemacroeconomic fundamentals to keep the Vietnamese economygrowing strongly in 2015. Consequently, we forecast Vietnam's realGDP growth to accelerate to 6.4% in 2015, from 6.0% in 2014.

We expect the State Bank of Vietnam (SBV) to devalue the Vietnamesedong by another 1.0% in 2015, owing to a strengthening US dollar.

As such, we see the unit averaging VND21,469/USD in 2015, downfrom VND21,003/USD previously. That said, the country's positiveeconomic growth outlook and improving external position shouldprovide structural support for the unit, keeping it largely stable overthe coming years.

While the Vietnamese economy has been strong, falling inflationand below-target credit growth will spur further interest rate cuts bythe SBV. We maintain our forecast for the SBV to cut its benchmarkinterest rate by a total of 50 basis points (bps) to 6.00% in 2015.

While the Vietnamese government continues with its budgetaryreform, the recent minimum public sector wage hike will slow fiscalimprovement. We forecast Vietnam's budget deficit as a share ofGDP to come in at 4.1% in 2015, up from our previous forecast of2.9% and marking only a minor improvement from the 4.4% in 2014.


Executive Summary
Core Views
Key Risks To Outlook
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Limited Economic Risks From 2016 Party Congress
The Communist Party of Vietnam (CPV)'s 12th National Congress, which will convene in January 2016, will maintain current progrowth
economic policies, but eschew political liberalisation. One of the CPV's biggest challenges will be cracking down on corruption.
Meanwhile, the emergence of a new generation of CPV officials could lead to rifts with the old guard over the pace of reform, leading to
policy confusion.
TABLE: Political Ove rvie w
Long-Term Political Outlook
Eventual Transition To Technocratic Government Faces Obstacles
Vietnam's biggest political question over the coming decade is whether one-party rule under the Communist Party of Vietnam (CPV) will
face growing calls for democratisation, as was the case in other major South East Asian countries. While our core scenario envisages
the CPV transforming itself into a technocratic administration, it faces major economic challenges which if mismanaged could lead to
widespread unrest. On the foreign policy front, we expect an increasingly powerful China to drive Vietnam further into the camp of Asian
nations with close relations with the US.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Activity
Solid Growth Momentum To Carry Over Into 2015
We expect continued strong FDI, healthy export growth and ongoing efforts by the government to improve macroeconomic
fundamentals to keep the Vietnamese economy growing strongly in 2015. Consequently, we forecast Vietnam's real GDP growth to
accelerate to 6.4% in 2015, from 6.0% in 2014.
TABLE: Economic Activit y
Fiscal Policy
Fiscal Recovery A Very Gradual Process
While the Vietnamese government continues with its budgetary reform, the recent minimum public sector wage hike will slow fiscal
improvement. We forecast Vietnam's budget deficit as a share of GDP to come in at 4.1% in 2015, up from our previous forecast of
2.9% and marking only a minor improvement from the 4.4% in 2014.
TABLE: Fiscal Polic y
Monetary Policy
SBV To Maintain Dovish Stance In 2015
While the Vietnamese economy has been strong, falling inflation and below-target credit growth will spur further interest rate cuts by the
State Bank of Vietnam (SBV). We maintain our forecast for the SBV to cut its benchmark interest rate by a total of 50 basis points to
6.00% in 2015.
TABLE: Moneta ry Polic y
Exchange Rate Policy
Constructive Long-Term Outlook For The Vietnamese Dong
We expect the State Bank of Vietnam to devalue the Vietnamese dong by another 1.0% in 2015, owing to a strengthening US dollar.
As such, we see the unit averaging VND21,469/USD in 2015, down from VND21,003/USD previously. That said, the country's positive
economic growth outlook and improving external position should provide structural support for the unit, keeping it largely stable over the
coming years.
TABLE: CURR ENCY FORECAST
TABLe: Current Account
Vietnam Q2 2015
Chapter 3: 10-Year Forecast
The Vietnamese Economy To 2024
2015-2024: A New Focus On Quality Growth
Vietnam's growth prospects over the next decade remain positive in our view, as reflected by our bullish forecasts for real GDP growth
to average 6.2% over 2015-2024. We foresee a more stable economic environment, with inflation averaging a benign 4.4 % and the
current account remaining in surplus averaging over the forecast period.
TABLE: Long -Term Mac roeconomic Forecasts
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
TABLE: Ope rational Ris k
Availability Of Labour
TABLE: Asia - Availabilit y Of Labou r Ris k
TABLE : Labou r Force Emplo yment By Secto r ('000)
TABLE : Top 10 Sou rce Count ries For Mig rant Wo rkers, '000
Crime Risk
TABLE: Asia - Criminal Ris k
TABLE: Crime Statistics
Chapter 5: Key Sectors
Automotives
TABLE: Autos Total Market - Histo rical Data & Forecasts
Food & Drink
TABLE: Comme rcial Vehicle Market - Histo rical Data & Forecasts
TABLE: Food Consumption Indicato rs - Histo rical Data & Forecasts
tABLE: Alcoholic Drin ks Value /Volume Sales , Production & Trade - Histo rical Data & Forecasts
TABLE: Mass Groce ry Retail Sales By Format - Histo rical Data & Forecasts
Other Key Sectors
TABLE: Pha rma Secto r Ke y Indicato rs
TABLE: Defence & Secu rit y Secto r Ke y Indicato rs
TABLE: Telecoms Secto r Ke y Indicato rs
TABLE: Oil & Gas Secto r Ke y Indicato rs
TABLE: Inf rast ructu re Secto r Ke y Indicato rs
TABLE: Freight Ke y Indicato rs
Chapter 6: BMI Global Assumptions
Global Outlook
Weaker EMs To Weigh On Growth
Table : Global Assumptions
Table : Developed States , Real GDP GrowtH, %
Table : BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
Table : Eme rging Markets , Real GDP Growth , %

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