Vietnamese economy showing signs of strength

The Vietnamese economy (VNM, quote) continues to rebound after previous woes to fight its way through the global slowdown. While other export-based frontier markets may be struggling, the Vietnamese economy is showing remarkable resilience.

Photo courtesy Greg Walters: http://www.flickr.com/people/gregwalters/

Ho Chi Minh City, Saigon

Earlier in the year, the Vietnamese economy struggled as a result of spiraling inflation. At one point it approached 25%; obviously such levels of inflation were unsustainable. However, the government embraced policies designed to slow down sky-high inflation rates that are now starting to bear fruit.

By implementing reforms designed to cool down the economy, inflation dropped to 8% last month. While such a rate of inflation would be detrimental to a developed economy, for a frontier market growing as fast as  the Vietnamese economy, such a level of inflation is fine.

As a result, the Vietnamese government has more policy flexibility to bolster the economy in the midst of a global downturn.

Second quarter growth was solid after the policies implemented by the government to ensure the economy cooled down. The Vietnamese economy grew 4.7% year-over-year, better than first quarter growth that fell to its lowest levels in three years.

However, recently the government has eased up on tightening measures in order to stimulate the economy in an attempt to return to previous years’ levels of growth.

According to Vo Tri Tranh, an economist for the Vietnamese government, “The [GDP] acceleration in the second quarter partly resulted from the government’s recent efforts to boost companies’ production and sales.”

Primary among the Vietnamese government’s attempts to bolster its economy has been interest rate cuts. For the fifth time, the Vietnamese government lowered its refinance rate; the government also slashed the discount rate a further percentage point.

Investors should expect these pro-growth policies from the Vietnamese government to help the economy grow going forward.

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