Bank forecasts strong year for exports HCM CITY (VNS)- Stronger exports this year can help lift Viet Nam out of its malaise, HSBC Vietnam says in its "At a Glance" report that was released yesterday. The report says both the improved new orders sub-index of the Purchasing Manufacturers' Index and the acceleration of imports show that exports should have a strong year, especially in electronics and manufacturing. Year to date, the country has a trade surplus, thanks to continued foreign investment inflow into Viet Nam. In Q1 2013, registered FDI increased almost 30 per cent year-on-year to US$2.9 billion, and pledged FDI rose to $6 billion, a 63 per cent increase. Manufacturing attracted $5.4 billion, 90 per cent of total FDI. This means that while domestic demand is sluggish, the export sector (63 per cent of which was driven by foreign firms in 2012) will continue to expand and provide much-needed jobs and income. Should the Government continue to stabilise the macro economy, invest in infrastructure projects that improve productivity and reduce red tape for efficient firms to flourish, Viet Nam could emerge in several years as a leaner economic machine after the country has made the necessary reforms, the report says. Apart from the jump in new export orders, March also saw employment sub-indices rise to above 50 (the neutral level). Demand from the region is rebounding, particularly in China, Japan and Thailand. The report says that since May 2012, the new export order sub-index has been contracting; as such, its improvement, should it be sustained, will continue to bolster the manufacturing sector. The new order (both domestic and export) index has also risen sharply, with evidence that both local economic activity and foreign demand are increasing. The rate of expansion of the output sub-index is the fastest in a year and a half, the report says. The expansion of the employment sub-index in five out of the past six months highlights manufacturers' positive outlook despite challenging domestic conditions. The report says planned expansion and higher sales volumes were responsible for higher headcounts in March. Retail sales are normalising, although they are still low compared with the historical average. On a trend basis (% three-month/three-month seasonally adjusted annualised), retail sales are rising slowly, indicative of a stabilisation in domestic activity "where consumption has recalibrated to new expectations," the report says . The consumption slowdown is not necessarily a negative event in the medium term, it notes, suggests that both the private and public sectors are more conservative, avoiding investing in activities that would not generate productivity in the long run. A return to fundamental investments after years of fruitless ventures is a step in the right direction. By a natural selection process, in which inefficient firms wither away slowly and effective ones flourish, Viet Nam could find its way out of its debt problem. The report also notes that exports may increase as a share of GDP to almost 90 per cent by next year's end. The continued rise in exports, with imports primarily used for production, will allow Viet Nam to have a current account surplus in the next two years, supported by remittance inflows. High-frequency data show that exports may have another strong year, the HSBC report says. Year to date (January- March), the country has enjoyed a trade surplus of $382 million, with exports expanding 19.7 per cent y-t-d and imports rising 17 per cent. "Given that the Government is committed to keeping the economy stable, with domestic demand still weak and commodity prices contained, we expect inflation to be contained in 2013. Unless there is a commodity price spike or further increases in public service costs, such as healthcare similar to Q3 2012's, we think inflation should slow in Q3 2013, which would allow the State Bank of Viet Nam to lower the OMO rate by another 50bp at end-Q2 2013," says the report. - VNS