In its Economic Outlook Report for 2015, the National Financial Supervisory Commission forecasts that inflation in 2015 will continue at a low level amid downward pressure from falling oil prices and global commodity prices. The decline in crude oil prices will impact average CPI in 2015, reducing it by approximately 1.1 percentage points compared to average inflation in 2014, reaching around 3%.
The next notable highlight of the domestic economic situation is that production and consumption continue to improve. The IIP industrial production index for January 2015 increased significantly, by 17.5% compared to the same period, in which the manufacturing and processing industry increased by 19.4%, much higher than the increase in January 2014 and the average monthly increase in 2014.
It is noteworthy that while January 2014 had seasonal factors (Lunar New Year), January 2015 did not. This is a sign that production continues to recover.
Referring to the HSBC Purchasing Managers' Index (PMI) shows that business operating conditions in the manufacturing sector continue to expand. The PMI index for December 2014 reached 52.7 points – the highest since April 2014. At the same time, the input price index for December 2014 was below 50 points and marked the fastest decline in two and a half years. Lower supplier prices, reduced transportation costs, and lower fuel costs are said to have reduced production costs.
Consumption increased sharply despite January 2015 not being a month with seasonal factors (Lunar New Year). Total retail sales of goods and consumer service revenue in January 2015 excluding the price factor is estimated to have increased by 11.95% compared to the same period, much higher than the same period in previous years since 2011.
The National Financial Supervisory Commission affirms that business and investment confidence has been consolidated and maintained firmly, thanks to commitments and efforts to reform administration and institutions to improve the business and investment environment toward a more market-oriented, equitable, and transparent direction. The BCI index on business confidence of European enterprises in Vietnam has increased strongly since Q4/2013, reaching 78 points in Q4/2014. This is the second highest level since 2010.
In the stock market, despite the East Sea incident and uncertainties in the global economy, the VN-Index increased by 8% in 2014. As of January 27, 2015, the VN-Index continued its recovery trend, increasing by 6%, thanks to falling oil prices and signs of foreign investors resuming disbursement.
Analyzing the cyclical factors of growth, the Commission confirms that growth is recovering clearly. Quarterly GDP growth (after seasonal adjustment) has maintained an upward trend since Q2/2014.
Based on quantitative analysis, the Commission forecasts that Q1/2015 growth will be 5.4%, higher than the same period in 2014. This trend will continue in subsequent quarters, and the full-year growth target of 6.2% is achievable.
Need to accelerate implementation of Resolution 19
According to the National Financial Supervisory Commission, the continued downward trend in CPI is an opportunity to consider adjusting prices of some goods without creating major fluctuations in the market and the economy. Falling oil prices are an opportunity to reduce transportation costs, and early reduction of transportation costs will have a positive spillover effect throughout the economy on production and consumption.
The Commission recommends that accelerating the implementation of Resolution 19 and controlling low-quality smuggled goods is an urgent requirement to enhance the competitiveness of enterprises and ensure a healthy competitive business environment. Along with this, it is necessary to quickly issue guiding documents for the new laws on investment and business that take effect in 2015.
In the context of the global economy maintaining low interest rates and easing monetary and fiscal policies, further consideration of reducing lending rates is necessary and meaningful to continue supporting the business sector in increasing competitiveness.
Given the appreciation of the USD and the devaluation of many other currencies, which will create certain pressure on exchange rates in 2015, the Commission recommends considering a more flexible exchange rate policy to ensure greater stability for the economy.
Source: Government Electronic Newspaper