Vietnam’s growth in recent year has been mainly domestic demand led and its financial sector is disconnected from global markets. Therefore, Vietnam, like Indonesia and the Philippines, has been able to continue to grow, despite at a reduced pace.

ANZ said that Vietnam’s GDP growth, fell to a record low of 3.1% compared to 8% to 9% pace of late 2006 and 2007, had likely bottomed. This assessment reflects the apparent stabilization of global trade and manufacturing as well as effects of the Government’s economic stimulus packages.

The bank predicted Vietnam’s GDP growth rate this year at 4.5%, “the lowest outturn since the late 1980s, but near the haed of the pack in emerging Asia.”

“Looking further ahead, we do not see a quick return to the go-go days of 2006 or 2007,” the bank said, and noted that the underlying speed limit problem has yet to be addressed.

“We would need a significant rise in risk appetite to return to the world where capital once again started flowing rapidly into economies like Vietnam,” it said, adding “ANZ warned the high risk of a repeat of the events of mid-2008, though not in the immediate term, without policy measures to either slow demand or increase the productive capacity of the country,” referring to high infration and heavy trade deficit.

In terms of trade, Vietnam is the only economy in emerging Asia that has positive export growth rate in the global economic recession. However, the favorable result primarily owes to precious metal, which has surged from 0.5% to 1% in recent years to one-sixth of the total export value at present, according to the bank. ANZ also hailed the central bank for its role in harnessing inflation.

During the global financial crisis, the State Bank of Vietnam has been one of the more aggressive central banks in terms of easing monetary policy by cutting base rate by 700 basis points during the October, 2008 to January, 2009 period. The central bank continued to lower its refinancing, discount, and 14-day loan rates, cutting by .1% to 7%, 5%, and 6.5% respectively.

ANZ still expected the central bank to cut the base rate by another half point to 6.5% by mid 2009 to ensure that monetary conditions remain sufficiently loose to support the recovery in growth.