Vietnam Outlook 2010

June 2010

Thomas Tobin
CEO
HSBC Bank (Vietnam) Ltd.
Summary

• Despite tough global conditions, Vietnam is now a middle-income country

• Growth drivers are in place, and we expect a strong 7.2% GDP growth this year
• Challenges, in the form of inflation and trade deficit, remain
• But longer term appeal of the country stays intact, as evidenced by the strength in
FDI inflows
Policy stimulus in 2010

• The State Bank of Vietnam (SBV) must actively balance policy objectives:
- Stabilize macro-economy
- Curb inflation
- Boost the economic growth

Normalisation of FX market due to: capping USD deposits, cooling gold trading.
SOE selling surplus dollars

Completion of 4% subsidy rate stimulus package

Removing cap on interest rates

Fiscal stimulus still flowing through to boost economy (long term impact)
Success over a tough period: Vietnam is now a middle income country!

GDP per capita, USD

1200
1000
800
600
400
200
0
1993 1995 1997 1999 2001 2003 2005 2007 2009

Source: CEIC, HSBC

The recovery has begun in earnest…

Vietnam GDP Growth (% y-o-y)

12
10
8
6

forecast
4
2
0
00 01 02 03 04 05 06 07 08 09 10

Source: CEIC, HSBC

 …with broad-based contributions…
% y-o-y
20 • Construction sector
helped to lead the initial
15
recovery stage, even as
10 it may be heading to
consolidation stage now
5
• Industrial sector as a
0 beneficiary of trade
recovery
-5
00 01 02 03 04 05 06 07 08 09 10 • Services sector has
played the role of
Industry Construction Services ‘stabilizer’ in
challenging times
Source: CEIC
…while retail sector is also pulling out of recession

% Yr; 3-month moving average

40

• Retail sales are

30 growing rapidly at
around 40% year-on-
20 year, pointing
towards strength in
10 private consumption
• Industrial production
0 remains firmly on
Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10
expansion mode
-10
Industrial production Retail sales

* 3 month moving average

Source: CEIC
But challenges remain

% y -o-y USD bn, 3mma

35 3.5 • Trade deficit and
30 3.0 inflation pressures
25 2.5 remain
20 2.0
15 1.5 • Will continue to
trigger policy actions
10 1.0
in the future
5 0.5
0 0.0
-5 -0.5
04 05 06 07 08 09 10
-10 -1.0
Inflation Trade Deficit - RHS

Source: CEIC, HSBC

Backdrop of Global Economy

1. EU situation will continue difficult for mid-term

2. USD interest rates unlikely to rise until middle of 2011
3. China will continue to power growth in Asia and Vietnam will benefit
FDI held up well and interest returning

25

20

15
USDbn

10

0
01 02 03 04 05 06 07 08 09*

FDI commitments FDI disbursements (RHS)

N.B. Chart truncated at 20, commitments were USD

60bn in 2008
*2009 figures are based on domestic press report
Source: CEIC
Potential GDP remains high

Rising investment share Productivity growth is strong

% Yr
50 10
S hare of G D P (% )

40 8
30 6
20 4
10 2
0 0
85 87 89 91 93 95 97 99 01 03 05 07 2000 2001 2002 2003 2004 2005 2006 2007

Vietnam China Productivity Employment GDP

Source: CEIC, HSBC

Urbanisation: long way still to go

70
% of urban population

60

50

40

30

20
90 95 00 05 10 15 20 25 30

CH IN VN Asia

Source: United Nations

Such endowments will help push growth further
GDP per capita
6000
5500
5000
4500
4000
3500
in USD

3000
2500
2000
1500
1000
500
0
93 95 97 99 01 03 05 07 09 11 13 15 17 19

Source: CEIC, HSBC

Vietnam forecasts
2007 2008 2009 2010f 2011f
GDP growth (% y-o-y) 8.5 6.2 5.3 7.2 5.8
Private consumption (% y-o-y) 9.6 7.6 3.4 5.8 5.0
Government consumption (% y-o-y) 9.0 5.8 6.5 5.0 3.0
Investment (% y-o-y) 23.0 13.2 3.2 8.0 6.0
Industrial production (% y-o-y) 18.2 15.9 8.6 10.9 7.3
Gross domestic saving (% GDP) 32.5 32.6 31.9 32.0 31.7
Unemployment rate, end-year (%) 4.6 4.7 5.2 5.0 4.7
CPI, average (% y-o-y) 8.3 23.0 7.8 9.8 7.5
Base rate (%) 8.25 8.50 8.00 11.00 11.00
Broad money supply M2, average (% y-o-y) 43.2 25.0 35.0 28.0 25.0
5-yr yield, end-year (%) 8.73 10.00 11.68 14.50 12.00
VND/USD, end-year 16017 17483 18479 19800 19800
Current account balance (% GDP) -9.8 -11.6 -7.0 -8.8 -6.2
Foreign Direct Investment (% GDP) 9.3 14.5 9.2 5.9 7.1
Consolidated government balance (% GDP) -5.0 -5.0 -8.0 -7.0 -5.5
Gross public external debt (% GDP) 23.4 23.6 24.5 25.5 25.0
Source: HSBC
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