Public Spending Cuts To Keep Economic Growth Subdued

Latest economic figures published by the General Statistics Office (GSO) suggest that a shift in the Vietnamese government's focus from driving economic growth towards fighting inflation and addressing macroeconomic imbalances is beginning to have a cooling effect on the economy. Vietnam's real GDP growth came in at a relatively subdued 5.4% y-o-y in Q111, compared to 7.2% in Q410. We expect economic activity to moderate over the coming months as the full impact of fiscal and monetary tightening continues to feed through the economy. This is in line with our forecast that economic growth will slow from 6.8% in 2010 to 6.3% in 2011. From our perspective, we see attempts by the government to cool the overheating economy as a positive move that will help facilitate a more stable growth trajectory for Vietnam over the longer term.

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