Growth rates of around 8 percent have transformed Vietnam into an economic wonder in the past few years. But the increasingly steep inflation is creating more and more problems for the People’s Republic. Inflation rates have reached a high of 25 percent in past weeks. In May, food prices rose by 68 percent.
Food prices have risen by well over 50 percent this year in Vietnam
The Vietnamese Central Bank has raised the base interest rate to 14 percent but denied rumours about an impending currency reform and the possibility of banks crashing. Although the trade deficit has reached about 14 billion US dollars, Vietnam expert Ray Mallon did not think there was any real serious danger.
“In the last 12 months or so inflation has taken off and is at scary levels, as is the current account deficit,” Mallon said but “when you look at inflation about half of that’s due to external factors -- if you take out food price inflation then the inflation rate is more like 12 percent, which is a worry but less scary.”
“So overall other sectors [such as] manufacturing and agriculture are still doing very well, employment growth is still very strong. This suggests that there will be continuing strong consumer demands, so it’s somewhere in between -- there is cause for concern but also for optimism.”
Germany’s Vietnamese presence
Germany is represented by about 280 companies in Vietnam. With a trade balance of over three billion US dollars Germany is Vietnam’s largest trading partner within the European Union.
Since Vietnam became a member of the World Trade Organisation numerous trade barriers and customs duties have been abolished. There are also other attractions for German investors, said Jan Nöther from the German Chambers of Industry and Commerce in Ho Chi Minh City, formerly known as Saigon.
““It is not only in the past two years since joining the World Trade Organisation that Vietnam has shown high growth rates but there has been a continuous process over years with growth rates of over 7.5 percent. On top of that, joining the World Trade Organisation is a sign that there’s an economic integration with the rest of the world taking place. And that’s a very interesting fact for German businesses, which are becoming increasingly strong in Vietnam and focussing more attention on Vietnam.”
Prussians of Asia
“Thirdly, and this is very interesting for me,” Mallon continued, “the people of Vietnam are very different from those in other growth regions -- there is a very young population in Vietnam, which is very inquisitive and eager. It is not for nothing that the Vietnamese are called the Prussians of Asia.”
The Vietnamese government has said that combating inflation is its most important aim.
In the meantime, big projects which are urgently needed but are expensive have been put on the backburner.