Finance ministry foresees four difficulties for Vietnam’s economy in 2010

The Ministry of Finance has released a report with a forecast for the world’s economy in 2010 and possible problems Vietnam may face.

Prices up, interest rates up

The report said that in 2010, the world’s economy will continue upward. The International Monetary Fund (IMF) has predicted a 3.1 percent growth rate of the world’s economy, higher than the minus 1.1 percent growth rate in 2009, but still much lower than the five percent obtained in 2006 and 2007, and 4.9 and 4.5 percent in 2004 and 2005.

With the recovery of economic growth, world trade will also increase. IMF forecasts that world trade will increase by 2.5 percent (it decreased by 11.9 percent in 2009). However, consumption demand will still be weak due to the slow increase of income and high unemployment. The trade of popular and daily used products will increase more rapidly than high grade products.

Regarding the oil price, the Ministry of Finance has forecast that the crude oil price in 2010 will be higher than in 2009 because of the higher demand for production and consumption and the dollar value decrease in the world market. It is expected that the oil price will hover around $70-90 per barrel.

If major countries continue implementing big economic stimulus packages, especially the US, it is highly possible that the gold price in the world will continue rising. However, there are many other factors that support the gold price increase. Many countries do not want to keep the US dollar for fear of a value decrease and have shifted to reserve gold instead.

Prices of other materials are also forecast to increase in 2010 due to demand increase from recovering economies and the currency value decrease

Regarding the world’s monetary market, the Ministry of Finance report said that the primary interest rates to be set by central banks tend to increase. Australian central bank, for example, raised interest rates to 3.25 percent in October 2009. ECB is likely to be the next bank which adjusts the interest rate. The US, Japan, the UK and Canada may also announce adjustments in interest rates.

Four difficulties anticipated for Vietnam

According to the Ministry of Finance, in such conditions Vietnam will face four difficulties.

Firstly, relating to export, while having forecast higher export turnover for 2010, the ministry still warns exports may not enjoy much growth. Vietnam’s main export items are farm produce and raw products with low added value, which makes it difficult for the country to increase export revenue. Inflation in import countries and the world’s low demand will also be a hindrance to Vietnam’s exports.

Secondly, though foreign investment in Vietnam will increase slowly, it will still be difficult to lure foreign capital, because big companies are just beginning to recover, which requires much capital.

Thirdly, the implementation of economic stimulus packages in other countries will certainly lead to budget deficits and a higher risk of inflation. In particular this will lead to cost increases for many kinds of materials used for production in Vietnam.

Fourthly, the fluctuating gold market and the unstable monetary, stock and foreign currency markets may badly affect the national economy.

VietNamNet/DTCK

Tags: Vietnam finance news