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VIETNAM
The Government has officially lowered the 2008 GDP growth target to 7 percent from 9 percent given the global economic outlook and domestic factors. The main factor is inflation, which increased again in March to a year-on-year rate of 19.4 percent, the highest level for 12 years.
Foreign direct investment (FDI) has maintained its 2007 momentum, totaling USD 5.4 billion in commitments over the first three months of 2008, and is expected to be over USD 20 billion for the year (the same as last year).
Imports continued to soar in March 2008 to USD 7.3 billion bringing total spending to USD 20.5 billion, up 68.7 percent year-on-year and resulting in a record trade deficit of USD 8.6 billion for the first quarter. This had an impact on exchange rates, as the VND reversed course against the USD after a period of appreciation. Bank sell rates reached VND 16,120 per USD on 31 March after dropping as low as 15,500 in the free market earlier in the month. Reasons for the declining VND at the end of March included strong demand for USD by importers; commercial banks bidding for USD deposits with high interest rates of 5-6 percent (compared to 2-3 percent internationally); and, finally, concern the trade deficit might sharply increase the current account deficit, which usually puts pressure on the local currency.
The VN Index plunged below 500 during March as a result of Government policies to control inflation. Near the end of the month the Government imposed a daily trading band of 1 percent on the Ho Chi Minh Stock Exchange (HOSE) and 2 percent on the Hanoi Stock Trading Exchange (HSTE) as an extreme temporary measure to stop the decline. The market rebounded slightly and finished March at 517 points. The trading band was widened slightly on April 7, 2008 to 2 percent on the HOSE and 3 percent on the HSTE. The current valuations of Vietnamese shares are increasingly attractive, with the market’s forward P/E of 11x (2008 earnings are expected to grow by 20 percent), now comparable to the regional average of about 12x.
On March 8, 2008 the Government raised the cap on foreign share ownership in unlisted (OTC) non-bank companies to 40 percent from 30 percent as part of efforts to attract more foreign investment and has also tightened fiscal stance by reducing all ministries’ administrative expenditures by 10 percent.
(Source: VinaCapital-Vietnam)
THE UNITED STATES
The economic releases that came out over the past month have been dismal. As a result, it increasingly looks like this six-year economic expansion has come to an end.
One of the most worrisome reports showed that employment declined for the second consecutive month. There were 63,000 jobs lost in February, following a 22,000 decline in January. Manufacturing lost another 52,000 workers and retail employment fell by 34,000 in February. Both declines were the largest in 5-6 years.
Home sales fell again in February. They are down a sharp 54% from the January 2006 peak. Delinquent mortgage payments and foreclosures are a growing problem for consumers and lenders and are expected to remain high throughout most of 2008, which will keep a lid on sales and continue to negatively impact economic growth.
Consumer net worth was down 0.9 percent in the fourth quarter. It was the first decline since mid-2002, when the economy was recovering from the 2001 recession. In the fourth quarter of 2007, consumers experienced declines in both the value of their real estate assets and their stock portfolios. The drop in real estate was the first in 15 years.
The manufacturing sector increasingly is being weighed down by the problems in the banking and consumer sectors. Industrial production for manufacturing fell 0.3% in February. Production of consumer goods was down from January and on a year-over-year basis. The appliance/furniture/carpeting segment – a victim of the housing slump – was down an exceptional 9.9% from a year ago.
The Federal Reserve has been responding aggressively to the economic weakness and to what some are calling the worst liquidity crisis since the Great Depression. In mid-March it cut the fed funds rate another 75 basis points to 2.25%. It has also lowered the discount rate, allowed securities firms to borrow directly from the Fed, and made billions of dollars of additional liquidity available to help the struggling financial sector.
The Conference Board’s Index of Leading Indicators has slipped for five consecutive months. Historically, a decline of that duration has implied that a recession is at hand.
(Source: Deloitte LLP – United States)
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