A PMI for Vietnam

HSBC has weighed into the growing debate about whether Vietnam has – or will – live up to earlier portrayals as a nascent Asian tiger with the launch of the first Vietnam manufacturing purchasing manager’s index (PMI) on Tuesday.

“Vietnam gets a lot of attention for a small economy, but a dearth of statistical data makes tracking economic activity there a tricky business,”

HSBC noted in launching the new PMI – a project in conjuction with Markit Economics.

The new index is based on Markit’s methodology for other such country surveys, thereby enabling international comparison.

The launch of the PMI, says HSBC, underlines Vietnam’s “strong growth potential” and its increasingly important role in global trade and capital flows.

The first monthly PMI, for April, however, shows a moderate deterioration in economic conditions from March, driving a dip below the level of 50 to 49.5,

“Limited access to credit has hurt business and production,” noted HSBC.

On the bright side, the bank adds, the PMI’s sub-indices show that employment and export orders remain resilient, “suggesting producers are expecting economic activity to pick up in coming quarters”.

But – and there is a big “but” – “given the magnitude of the slowdown in manufacturing activity in 1Q, the economy is unlikely to be able to keep up with its long-term growth rate (averaging an annual 7 per cent in the past decade) this year.

Amid a sharp slowdown in domestic demand, HSBC forecasts growth will fall to 5.1 per cent in 2012 from 5.9 per cent in 2011.”

Nevertheless, concludes HSBC, “through its transformation from a war-torn nation to a thriving emerging economy in the past 40 years, Vietnam has shown an impressive ability to make progress in the face of adversity.

“Today… the country stands at a crossroads.

With favourable demographics, geographical proximity to China and a strong entrepreneurial culture, the economy has robust fundamentals.

But without reforms to eliminate longstanding structural bottlenecks – such as inefficient state-owned enterprises, public investment, and the banking sector – the country could be stuck on a below-trend growth trajectory over the medium term.”

The folks at JPMorgan however have some more positive news, highlighting in their Asia Pacific equity research a 2.4 per cent rally in the VN-index (the Vietnam Ho Chi Minh Stock Index) over the past two weeks, thanks to “supportive macroeconomic developments despite a long public holiday.”

The Vietnamese government has proposed a tax subsidy package worth VND25,000bn to boost economic growth and provide incentives for weak SMEs, JPMorgan notes.

In particular, the government plans to lower corporate income taxes by 30 per cent (from the 25 per cent current tax rate) in priority sectors such as agriculture, textiles and garments.

SMEs can also enjoy deferred VAT in April, May and June to the end of the year.

All good then – sort of.

 By GWEN ROBINSON

Source: FT

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