While many of its Southeast Asian regional peers like Thailand (THD, quote) and Malaysia (EWM, quote) continue to outperform and beat expectations, the Vietnamese economy (VNM, quote) is faltering as a result of the global economic slowdown.
The Vietnamese economy is seeing its growth slow due to a contraction in demand from around the world. Given the country’s export-reliant economy, the fact Vietnam is experiencing a slowdown is hardly surprising.
Unlike Thailand and Malaysia, which have seen a considerable boost in domestic spending, internal consumption in the Vietnamese economy has proven harder to catalyze.
The State Bank of Vietnam announced this week that lending would only reach 8-10% this year, far below their January target of 15-17%.
As a result, the central bank has implemented measures designed to foster credit growth. By injecting liquidity into commercial banks, the State Bank of Vietnam hopes that lending will increase; however, given the subpar credit conditions, it remains unclear how effective these initiatives will be.
Slowing credit growth and an overall weak global economy are largely responsible for the Vietnamese economy’s drop in GDP growth. Numbers were recently revised downwards; the country is now expected to grow less than 5%, considerably lower than the initial 6% forecast. While 5% growth would be more than welcome in developed nations, for a frontier market like Vietnam, less than 5% growth is poor.
Like a number of other emerging market nations, the health of the Vietnamese economy is contingent upon a recovery in the global economy. If signs materialize that Europe is getting its act together, starting a position in the Vietnamese ETF is not a bad idea as the country would likely see a stock market rebound if the global economy gets back on track. However, until any sort of concrete European plan manifests itself, don’t expect too much from the Vietnamese economy.