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We maintain our 2.9% growth forecast for 2009 after GDP grew by an estimated 3.1% y-o-y in Q109 following a revised 6.18% expansion in 2008. With the economy likely to continue to suffer, we expect further monetary and fiscal stimulus measures over the remainder of the year, but carry doubts about their effectiveness. We expect GDP growth of 5.0% in 2010 as the global economy begins to recover and a weaker dong bolsters exports.
We foresee both economic and political risks rising in 2009 as global demand for Vietnam's manufactured exports fall and factories lay off workers. The global recession will shake the foundations of the Vietnamese growth story as it has been reliant on strong demand for manufactured products from G3 markets. With demand from developed markets slumping, Vietnam will be heavily reliant on remittances and FDI inflows to stimulate domestic demand and keep GDP growth in positive territory.
With Prime Minister Nguyen Tan Dung's economic reform agenda intact, although currently on the backburner, we expect GDP growth to return to around 8% in 2011 and onwards.
Vietnam is in line to take a hard hit in 2009 as exports to G3 economies contract sharply. We have revised down our GDP growth forecast for 2009 from 5.0% to 2.9% as the construction and manufacturing sectors contract. With domestic demand far from sufficient to fill the gap and Hanoi lacking the wherewithal to implement any sizeable fiscal stimulus, we believe the government will opt for the easy way out by devaluing the dong to increase the price competitiveness of Vietnamese exporters. We are currently expecting a 8.0% devaluation of the currency in 2009 to VND19,000/US$ by year-end, which should help growth recover to 5.0% in 2010.
Growth in 2008 was largely held up by the resilience of the export sector in the face of a domestic economy plagued by spiralling inflation and fiscal and monetary tightening. However, like many other Asian countries, H208 proved to be a half of reckoning for Vietnamese exporters as exports fell from US$6.6bn in July to US$3.8bn in December. This decline turned into a slump in January with the exports of textiles decreasing by 33.2% y-o-y to US$550mn, footwear exports falling 26.0% to US$350mn and overseas shipments dropping 34.4% to US$120mn.
Vietnam's trade deficit contracted in H208 after having ballooned in the first half of the year, as imports of gold, automobiles and other capital goods skyrocketed as Vietnamese sought to protect their household wealth from rapidly increasing inflation. Threatened with a balance of payments crisis and a collapsing currency, the Vietnamese government hiked import taxes on automobiles and suspended gold imports in May and June 2008, respectively. Falling global commodity prices helped Vietnam narrow its trade deficit from a massive US$14.2bn in H108 to a mere US$3.3bn shortfall in the second half of the year.
We expect Vietnam's trade deficit to narrow sharply to US$9.3bn in 2009 after the record US$17.5bn shortfall accumulated in 2008. This will lead to a significant improvement in Vietnam's balance-ofpayments situation in spite of an expected fall in remittances and foreign direct investment inflows.
We are expecting the agricultural sector to post real growth of 3.0% in 2009 as lower fuel and fertiliser prices reduce production costs and both internal and external demand for rice is boosted as consumers substitute more expensive options such as meat and vegetables for the food staple. We are also expecting the service sector to post healthy growth.
In the Asia Pacific, we profile 23 companies. These are AEGON, AIG, Allianz, Aviva, AXA, Cardif, Fortis, Generali, Groupama, HDI-Gerling, HSBC Insurance, ING Group, Liberty Mutual, Manulife, MetLife, Prudential Financial, Prudential plc, QBE, RSA, Sun Life Financial, The Hartford, Principal Financial Group and Zurich Financial Services.
Over the course of 2008, estimated total premiums in Vietnam rose by 16% to VND21,665,000mn. Nonlife premiums rose by 19% to VND10,855,000mn while life premiums rose by 13% to VND10,810,000mn.
Between now and the end of the forecast period, we expect that annual non-life premiums will grow by VND14,203,000mn, while annual life premiums should grow by VND21,126,388mn.
Growth in non-life premiums should be driven by the general growth of nominal GDP plus a rise in nonlife penetration from the current level of 0.73% to 1.00%.
Growth in life premiums should be driven by the change in the overall population and a rise in life density from US$6.78 to US$20.00 per capita.
The Insurance Business Environment Rating is 44.1.
Vietnam Insurance Report Q2 2009: http://www.companiesandmarkets.com/r.ashx?id=O94I2L71484553
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