VIETNAM QUARTERLY

MACROECONOMIC REPORT

QUARTER 4 - 2014

ii

Supported by

Department of Foreign Affairs and Trade

Australian Government

iii

Content The world economy in brief .......................................................... 1

Executive summary ....................................................................... 4

Overview ......................................................................................... 6

Economic growth ........................................................................ 6

Inflation ....................................................................................... 7

Aggregate supply ........................................................................... 8

Agriculture .................................................................................. 8

Industrial production ................................................................... 8

Services ....................................................................................... 9

Factor market .............................................................................. 9

Aggregate demand ....................................................................... 10

Consumption ............................................................................. 10

Investment ................................................................................. 10

Government expenditure ........................................................... 11

Net export .................................................................................. 11

Macroeconomic balance .............................................................. 11

Budget balance .......................................................................... 11

Balance of payments ................................................................. 12

Capital market and money market ............................................ 13

Capital market ........................................................................... 13

Money market ........................................................................... 13

Asset market ................................................................................. 14

Securities ................................................................................... 14

Gold ........................................................................................... 15

Real estate ................................................................................. 15

Economic prospect and policy suggestion ................................. 16

Economic prospect for 2015 and beyond .................................. 16

Policy suggestion ...................................................................... 19

iv

Abbreviations

BoJ Bank of Japan

BoE Bank of England

BSC BIDV Securities Company

ECB European Central Bank

FDI Foreign Direct Investment

Fed Federal Reserve

FIE Foreign invested enterprises

FMCG Fast Moving Consumption Goods

GDP Gross Domestic Product

GSO General Statistics Office

HSCB Hong Kong Shanghai Commercial Bank

lhs left hand side

IMF International Monetary Fund

MOLISA Ministry of Labour, Invalid and Social Affairs

MOIT Ministry of Industry and Trade

MPI Ministry of Planning and Investment

OECD Organization for Economic Co-operation and Development

PMI Purchasing Manager Index

qoq quarter-on-quarter

rhs right hand side

SBV State Bank of Vietnam

UN United Nations

USD the United State dollar

VAMC Vietnam Asset Management Company

VCB Vietnam Bank of Foreign Trade

VEPR Vietnam Centre for Economic and Policy Research

VND Vietnam dong

WB World Bank

yoy year-on-year

1

The world economy in brief

The world economy saw an uneven growth between major developed

economies. A number of high-income countries slowed down in the

second half of 2014 due to a number of reasons. Stagnant demand led to

decreasing inflation. Export-oriented developing economies lost some

steam due to a slowdown in demand growth. Geopolitical risks arose as

tension between Russia and the West escalated and turned to economic

sanctions imposed by both sides.

The US economy strengthened its economic recovery, overcoming

worry of global economic slowdown. After contracting in first quarter

(Q1) due to severe weather, the US economy bounced back with two

consecutive quarters of positive growth with increasing rate in line with

improvement in the labour market. The unemployment rate fell to the

pre-crisis level of 5.8%. The GDP growth rate is expected to ease in Q4

due to moderate export demand. Falling oil price could prompt to a cut in

output and investment in shale oil field while boosting consumption and

non-oil investment expenditure.

The quantitative easing program was ended by the Fed after two years as

the economy showed positive signs of growth and employment. The end

of QE3 further bolstered confidence in the the US economy and US

dollar (USD). The normalization of the US monetary policy has been

attributed to the shift of global capital and contributed to the fall of

commodity prices, especially crude oil.

In the Euro Area (EA18), the impacts of the budget consolidation and

monetary easing measures were not bold enough to put the zone in a

more stable recovery track. Although EA18 began recovering from the

economic recession and the unemployment rate began to fall, the risk of

Euro Area disintegrating remained. Fluctuating growth rates (0.3% in

Q1, 0.1% in Q2 and 0.2% in Q3) could also be attributed to the self-

reinforcing spiral of insufficient aggregate demand and lower potential

growth and the consequence of economic sanction on Russia.

The trend of declining deflation dimmed the outlook of the Euro Area.

Inflation rate shrank to the bottom in four years and the uneven growth

rates between member economies prompted the European Central Bank

(ECB) to cut deposit rate to -0.1% and base interest rate to a historic low

of 0.15% while keeping open to further easing, including a large-scale

bond purchasing program similar to Japan and the US beside the

Targeted Longer Term Refinancing Operation, guaranteed bonds and

asset-backed securities commencing since June 2014. Monetary easing

and dimmer growth of EA18 caused the Euro to fall by about 15%

against the USD in the second half of 2014.

Japan managed to end deflation thanks to large-scale monetary easing

and fiscal stimulus. Inflation and lower Yen (against USD) enhanced

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

11Q

1

11Q

3

12Q

1

12Q

3

13Q

1

13Q

3

14Q

1

14Q

3

Source: OECD

Growth rates of selected

major economies, % qoq

EA, Q3 @ 0,2%

US. Q4 @ 0.7%

Japan, Q3 @ -0,5%

China, Q4 @ 1.5%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

Source: global-rates.com

Inflation rates of selected

economies (% yoy)

EA18, Dec14 @ -

0,169%

US, Dec14 @ 0.756%

Japan, Dec14 @ 2.379%

2

production, investment, and consumption expenditure; however, a hike in

sales tax (from 5% to 8%) in April 2014 in the absence of higher wage

growth caused a plunge in both consumption and investment. High

growth rate in Q1 was followed by a recession in the two subsequent

quarters of 2014.

Japan will have the next two years to absorb structural reforms in a so-

called Abenomics including corporate tax cut, labour market reforms

and TPP negotiations before sales tax jump to 10% in 2017. The

feasibility of the reforms proposed by the Japanese Prime Minister

remained uncertain because the Japanese business environment and

bureaucracy has appeared to resist reform measures.

The Russian economy was severely affected by the fall in crude oil

price and economic sanctions imposed by the European Union (EU) and

the US. The impact has gradually worsened because of the economic

structure with a high reliance on mining and export of raw materials to

trade for consumption goods. While GDP growth may exceed

expectations to reach 0.8% yoy in 2014, Russia is highly likely to witness

contraction in 2015. Due to sanctions on export to Russia, goods were

becoming under-supplied; inflation has been rising to 10%.

In this economic backdrop, the Russian Rouble RUB has lost about

one third of its value against the USD, while capital flight out of Russia

may grow to about USD120 billion in 2014. In mid-December of 2014,

the Russian Central Bank raised its benchmark interest rate from 10.5%

to 17% in order to stop the depreciation of the RUB. If the RUB stops

falling, the high interest rate may drive the Russian economy deeper into

recession in the next two years, which was already expected before the

banks interest rate hike. Otherwise, the financial meltdown will likely

worsen and the economy will continue to suffer from shortage of

consumer goods.

The Chinese economic growth decelerated when China tried to rebalance

its economy towards domestic consumption. The economic growth rate

eased to 7.6% from 7.7% in 2013 and is expected to slow to 7.5% in

2015, shaping a mid-term annual growth trend of around 7%. Low

inflation rate reflected a slowdown in external demand while internal

demand was disappointing. The contraction of construction sector has

spread to other relating sectors. In the short term, China may continue to

provide mini-stimuli to smooth the rebalancing process and at the same

time promoting reforms in the financial sector and real estate sector and

restructuring its economy.

Upward trend of growth has slowed in South East Asian economies,

mainly due to the slowdown in Europe and China during the second half

of 2014. Among major economies in ASEAN, only Viet Nam and

0.0%

0.4%

0.8%

1.2%

1.6%

05-0

9

11-0

9

05-1

0

11-1

0

05-1

1

11-1

1

05-1

2

11-1

2

05-1

3

11-1

3

05-1

4

Source: ECB, BoJ, BoE, Fed

Base rates of selected

central banks (%)

ECB, 0.05%BoJ, 0.1%BoE, 0.5%

100

120

140

160

180

200

220

Source: IMF

Commodity price index

(USD, constant 2005 price)

Food, Dec14 @ 158.0

Metal, Dec14 @ 148.7

3

Malaysia are likely to record higher growth rates than 2013, respectively

0.2 and 1 percentage point. The growth rate of Thailand may contract up

to 2 percentage points, while the reduction may reach 1.2 percentage

points in the Philippines and 0.7 percentage points in Indonesia and

Singapore according to several forecasts. ASEAN 2015s growth forecast

was also cut from the forecasts made in early 2014.

The movement of crude oil price attracted global attention during the

fourth quarter of 2014. Oil price dropped by 10% in Q3 then was in free-

fall in Q4 when it lost further 40%. Spot price in the last day of 2014 was

around USD55 per barrel, a half of the peak around last June. Oil price

could overshoot to as low as USD40 per barrel before climbing to a more

stable level. There have been speculations about the driving forces of oil

price slump, including slowdown of demand for oil products in Europe,

Japan and China while global supply increased in the US, Iran and Libya,

and the impact of the normalization of monetary policy in the US on

global commodity prices. Low oil price will shift the wealth balance

from oil-producing states to consumers.

A majority of forecasts about the global economy showed a dimmer

outlook. A number of institutions lowered growth forecasts of major

economies in 2014 and 2015 by 0.1 to 0.5 percentage points compared to

early 2014s forecast. The US economy may see a slight adjustment if the

interest rate rises in the second half of 2015. The outlook of the economic

recovery of Japan and Europe has uncertainty given the absence of strong

political agreement and robust policy measures. This economic backdrop

will make emerging economies face stronger competition.

The global economic outlook may benefit Vietnam-made cheap

consumption goods, such as apparel, footwear, and mobile phones.

Impact on trade and investment may originate from emerging economies

in ASEAN, Latin America and South Asia which have large trade with

Europe, Japan and China and are at a higher ladder of value than Viet

Nam. Another significant effect comes from the weakening of the

Russian economy and the RUB to the Vietnamese tourism sector.

However, a number of Vietnamese firms may benefit from weaker RUB,

as well as the Japanese Yen and the Euro, in terms of import and loan

payments.

4

Executive summary

Higher growth led by industry and services

High industrial output in the last quarter drove GDP growth of Q4 to

6.4% yoy, raising annual growth of 2014 to 6% compared to 5.4% of

2013. Growth rate of services decelerated to 6% while imports of

services increased.

Inflation fell, demand rose modestly

Inflation rate based on CPI dropped to 1.8% yoy in December, causing

the annual inflation rate to fall to 4%. Food and energy price inflation

contributed the most to the headline inflation. Falling core inflation by

50% annually since 2012 suggest a continual contracting demand growth

and domestic demand has not recovered to where it was 3 years ago.

Production improved, strengthening the basis of economic recovery.

Higher growth of industrial production and construction raised the

confidence that the basis of economic recovery was rooted firmly in

production expansion. Conditions of production maintained favourable

for the whole year of 2014, thanks to a partial improvement in domestic

new orders while exports order remained strong.

Services decelerated, net imported services rose

Services have been going on a downward trend since 2005. Although the

period of economic slowdown was over, output growth of service sector,

albeit not low, has not rebounded to pre-crisis level. In the same time, net

imports of services kept rising, warning that the domestic service sector

might face difficulties in competing with foreigners.

Low national unemployment, high youth unemployment

The unemployment rate of around 2% belied the real state of

unemployment. The youth unemployment rate was considerably higher

than national employment rate while job quality was generally low.

Moreover, working in the informal sector or being underemployed may

stem from the mismatch between the demand and supply of skilled and

trained labours.

Consumption had mixed signals

Official statistics showed a continuous increase in consumption

expenditure from the lowest level during the period of economic

slowdown. On the contrary, private surveys suggested a darker picture as

they showed a more sluggish expenditure which was far below pre-crisis

level.

High trade surplus thanks to foreign invested enterprises

Exports exceeding imports resulted to a largest trade surplus (USD2

billion) in the last 6 years. The foreign invested sector contributed the

5

most by leading in manufacturing and exporting high-tech products.

However, its contribution to the economy was modest due to its labour-

intensive and low value-added production. Moreover, it led to increased

imports of industrial supplies and capital goods which mostly originated

from China and ASEAN.

Record high surplus in balance of payments, reduced budget deficit

The balance of payments in 2014 may record a surplus up to USD14

billion a record high. The high surplus was a result of both surplus in

current account and financial account. Meanwhile, increased budget

revenue and tapered spending (mostly due to cutting investment

expenditure) reduced budget deficit to 3.9% of GDP from more than 5%

of GDP in 2013.

Reduced interest rate, credit growth met target thanks to credit in

foreign currencies

Deposit and lending interest rate reduced by 1-2 percentage points

compared to 2013 due to lower inflation and excess capital in the

banking system. Outstanding credit grew higher than last year and met

annual target thanks to promoting credits in foreign currencies and

unsecured loan due to the difficulties in disseminating credit in

Vietnamese dong to the economy and evaluation of asset-backed loan.

Interest rate remained a barrier to credit.

Volatile exchange rate, foreign exchange reserves enlarged

The exchange rate seemed to be more volatile than 2013. The State Bank

of Viet Nam intervened twice in the money market to reign in the

depreciation of the Vietnam dong.

Thanks to a large surplus in the balance of payments, the foreign

exchange reserves swelled to USD37 billion, a record high.

Stock market swung widely, real estate market heated up

Two main indicators of Viet Nams stock exchanges, VN-index and

HNX-index, nearly levelled off after two complete cycles. Tensions after

the East Sea incident in Q2 and the drop in crude oil price starting in Q3

were two main contributing factors to the ups and downs of stock prices.

Another underlying factor was the margin trading.

The real estate market witnessed early signs of recovery as transactions

increased and both sides of the market unfroze. The inflow of foreign

capital also exhibited a positive sign for mid-term outlook.

6

Overview

Economic growth

Output growth in 2014 reached 5.98% on a year-on-year basis (yoy).

Despite a low start in the first half of the year (5% yoy), the economy

accelerated in the second half, scoring a growth rate of 6.07% in Q3 and

6.96% in Q4.

The difference compared to the previous two years was the sound

improvement of industrial production of which the upward trend could be

traced back to Q3 of 2013. The secondary sector which consists of

industrial production and construction grew by 7.15% thanks to high

growth in manufacturing (8.45%). Industrial production and construction

surpassed services to become the leading driving force of economic

growth in 2014 with 2.75 percentage points. The service sector witnessed

a broad slowdown, causing overall growth to sink to the lowest rate (6%)

in ten years. The downward trend of services growth rate during the

2005-2014 period warned about the troubles faced by the domestic sector

in the wake of market opening. The growth rate of the primary sector

(agriculture, forestry and fishery) rose to 3.49% compared to 2.7% in the

last two previous years thanks to a boost from external demand.

The economic structure shifted slightly, with a reduction in proportion of

the primary sector in nominal GDP (0.26 percentage point) and

respective gain in the secondary sector. Even with adjustments for price

factor (by using constant 2010 prices), the economic structure hardly

changed. The underlying reason was that increases in productivity of

industrial production have not far exceeded the ones of services to reduce

relative prices and shrinking its proportion in nominal GDP. Economic

restructuring in recent years relied on shifting labour between economic

sectors. Limited vacancies in the industrial and construction sector due to

operating below capacity and in the service sector due to declining

productivity growth also hampered labour movement.

The pattern of double-dip slowdown dragged annual economic growth in

the low of around 5% in the period of 2008-9 and 2012-3. The modest

improvement in growth was accompanied with moderate increases in the

consumption expenditure of household (4.9% and 5.2% in 2012 and

2013, respectively) and investment (in terms of gross fix capital

formation, by 2.4% and 5.4%, respectively) compared to the average of

8% and 11% in the booming years. The acceleration in 2014 of

household consumption (6.12%) and investment (8.9%) implied that the

economy was heading to the average trend of quick-growth years, albeit

still far from it.

The declining average growth rate in the 5-year periods implied a

slowdown in productivity gain. Based on current momentum, economic

0%

2%

4%

6%

8%

Source: ADB, GSO

Contribution to GDP growth,

2005-2014 (% point)

Agriculture Industry

Services GDP growth

0%

2%

4%

6%

8%

10%

Source: GSO

Economic growth by sector,

2005-2014 (% yoy)

GDP growth

Agriculture, 2014 @ 3.49%

Industry-construction, 2014 @ 7.14%

Services, 2014 : 5.96%

7.5 7 6

0

2

4

6

8

2001-2005 2006-2010 2010-2015

(e)

Source: author's calculation

Average 5-year growth rate.

2001-2015 (% yoy)

GDP growth, (e: estimate)

7

growth is unlikely to surpass 6.5% in 2015, thus averaging under 6%

annually in the period between 2011 and 2015. Compared with the

annual average of 7% in the 2005-10 period and 7.5% in 2001-05 period,

the slowdown suggested that the diminishing marginal gain of the input-

driven growth model has reached closer to null. The gain in total

productivity factor was said to account for a minor percentage compared

to labour and capital. Growth momentum in the mid and long-term

heavily depends on technology transfer and the innovation of new

established firms.

The economy is increasingly depending on foreign investment to fill the

void of both the private and the public domestic sectors, although the

productivity of foreign firms may not necessarily outperform. Foreign

invested sectors accounted for nearly 20% of GDP, 70% of exports and

60% of imports.

Inflation

Prices changed by the slowest rate since 2000. Consumer price index

(CPI) rose by 4.09% in 2014, less than a half of the annual average

increase in the last 10 years. On an annual basis, the inflation rate

reduced from 5.45% in January to 1.84% in December. An underlying

resilient trend was the fall of core inflation (excluding food and petrol

prices). Since 2012, annual core inflation halved each year to score 3.2%

in 2014. The upward trend of food and petrol prices reversed in the

second half of 2014 parallel to global movements.

Global demand was contracting while supply increased and inelastic with

prices contributed to the overall fall of commodity prices. Spot and future

prices reflected a gloomy assessment and outlook of the global economy.

Food inflation has fallen for 16 consecutive months, down by 7% yoy in

October 2014. World crude oil has dropped 50% from the peak in

September.

Low inflation may have opposite impacts. On one side, low inflation

increases real income and promotes consumptions, while cutting input

cost to firms with extra help from falling interest rate. On the other side,

low inflation expectations, even deflation, may hamper current

expenditure, mostly for durable goods. Another mechanism is the

increase of real interest rate may also reduce incentives for consumption

and savings. Regarding firms, low inflation may limit the willingness to

expand investment due to lower revenue, increased real interest rate and

debt burden.

0

2

4

6

8

10

12

01-1

3

03-1

3

05-1

3

07-1

3

09-1

3

11-1

3

01-1

4

03-1

4

05-1

4

07-1

4

09-1

4

11-1

4

Source: GSO

Inflation rate, (% yoy)

Headline, Dec14 @ 1.84%

Core, Dec14 @ 2.62%

Non-core, Dec14 @ 0.73%

8

Aggregate supply

Agriculture

Annual agriculture growth rate remained below 3% since 2012. Rice

output in 2014 was expected to rise by 2% yoy, mainly due to rise of 4%

in output the winter-spring crop (November 2013 to May 2014). The

Vietnamese agriculture plans to transfer 260,000 hectare (ha) of

cultivating rice to other crops during 2014-15 under a plan of crop

changing until 2020. The rice cultivation area make up 7.9 million ha, a

reduction of 1.1% compared to last year. Growing 3 crops per year and

the construction of upstream hydroelectric plants led to overuse of crop

protection substances and diminishing productivity. Most farmers

favoured disease tolerant rice seeds to better quality seeds such as those

of Thai farmers.

The forestry sector maintained a high growth rate. The wood plantation

area makes up 226,000 ha, increasing by 6.1% whereas wood product

output rose by 9.3% yoy to 6.4 million cubic meters. The export revenue

also saw a rise of 9.1% compared to 2013 to USD6 billion, ranking the

8th in major export products in 2014. The sharp rise was partly

contributed by a sharp recovery in the USs orders after years of low

demand and a number of orders changed from China to Viet Nam thanks

to the cost advantage.

The fishery sector saw a successful year in terms of export. Export

earnings jumped to the 5th of all products, mounted to USD7.8 billion

an increase of 17.6% yoy most of which were shrimps. Shrimp exports

scored a record high of USD4.1 billion, increasing by 25% compared to

2013s, while output grew by 9.1%. The white-leg shrimp farming area

accounted for only one eighth of total shrimp farming area while still

contributing half of all shrimp output.

Industrial production

A number of indicators on industrial production showed a better overall

condition and a growing confidence that economic recovery may root in

production after all. Industrial output grew by 7.15%, most of which

surpassed 2013s. Manufacturing rose by 8.45%, mining mounted by

2.4% and electricity, gas and water soared by 11.3%. Industrial

production index also rose 7.6%, compared to 5.9% in 2013, in line with

a marked increase in electricity consumption.

Production condition improved continuously in 2014. Purchasing

Manager Index (PMI) of the manufacturing sector of Viet Nam reported

improving condition for 16 consecutive months since September 2013.

The manufacturing sector maintained on the expansion zone even in

month with high seasonality (July and August) which implied the sturdy

0%

5%

10%

15%

20%

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

Source: GSO

Gross output growth,

2001-14 (% yoy)

Agriculture, 2014 @ 2.86%

Forestry, 2014 @ 7.09%

Fishery, 2014 @ 6.82%

0

4

8

12

16

20

02-1

3

04-1

3

06-1

3

08-1

3

10-1

3

12-1

3

02-1

4

04-1

4

06-1

4

08-1

4

10-1

4

12-1

4

Source: MOIT

Industry indicators, % yoy

Shipment Dec14 @ 14.2%

Inventory, Dec-1 : 10.0%

Production, Dec14: 7.6%

42

44

46

48

50

52

54

01-1

2

04-1

2

07-1

2

10-1

2

01-1

3

04-1

3

07-1

3

10-1

3

01-1

4

04-1

4

07-1

4

10-1

4

Source: HSBC-Markit

Purchasing Manager Index

PMI, Dec14: 52.7

9

resilience. Both new orders and new export orders remained high, which

led to constant improvement in employment and output.

Despite being relatively high, inventory showed sign of contraction as the

rate of shipment caught up 2013s. The number of dissolved firms

mounted to more than 60,000 it was the highest number in the last 3

years, meaning that the destruction and renewal of firms and growth

drivers were still intense although conditions seemed more favourable.

Construction sector grew by 7.1% yoy compared to 5.9% of 2013 thanks

to the warming up of real estate market and foreign investment. This

sector may reach pre-crisis growth level of nearly 10% thanks to growing

demand for housing in urban areas.

Services

Once being the leading driver of growth in Viet Nam, recent data showed

that the service sector saw diminishing momentum in the same time the

economy increased import of services. Annual growth decelerated from

the pre-crisis level of 8% to just less than 6% in 2014. It also ranked

second in distribution to growth, 2.62 percentage points compared to 2.85

percentage points in 2013.

The economy increasingly imported more services, which earnings

reached USD15 billion in 2014 (5.6% yoy). This growth could be

attributed mostly to sea transportation and marine insurance as it

accounted for 56% of earnings and rose 12.6% yoy. The growing trend of

net imports of services (USD4 billion in 2014) was mostly due to the rise

of foreign logistic companies because domestic companies fell behind in

this field.

Factor market

In recent years, the unemployment rate of around 2% belied the real

situation of the labour market, which lost meaning in policy making.

According to latest data, the average national unemployment rate was

2.1% in 2014, slightly lower than 2.2% of last year. Higher growth of

industrial sector, which was mainly contributed by labour-intensive

manufacturing plants, drove the industrial employment index to rise by

4.3% yoy.

Viet Nam had a large workforce that increases by 1 million people

annually. According to a survey, youth labour has the highest

productivity and contributes to about 50% of productivity growth of all

industries. However, the percentage of youth labour in the workforce fell

by 5% during 2010-2012 due to aging population. Youth unemployment

rate exceeding the national rate, low job quality, informal job and

underemployment resulted from a mismatch in supply and demand for

0.00%

1.00%

2.00%

3.00%

4.00%

Source: GSO

Unemployment rate

(% of labor force)

Nation-wide, Q4/14 @ 2.1%

Urban, Q4/14 @ 3.45%

Rural, Q4/14 @ 1.49%

10

skilled employee. The high rate of youth unemployment, which is on the

rise, will be unfavourable to the economy in the medium term.

The amendment which allows foreigners to buy house in Viet Nam is a

game-changer and could spur the segment of luxury houses. Rent for

luxury apartments and houses may fall as a consequence.

Aggregate demand

Consumption

Consumption data is mixed. According to official statistics, consumption

demand seemed to have bottomed out from the low in 2011. The volume

of goods and services consumed in 2014 rose by 6.3% yoy, while

expenditure on GDP for final consumption increased by 6.2%. Data on

fast-moving consumer goods surveyed by Kantar showed a gloomier

picture: volume consumption up to Q3/14 fell by 1.5% yoy in urban areas

while rose only by 6.2% in rural areas, implying a weaker demand than

2013.

Another survey by Nielsen depicts that a more stable macro environment

and brighter economic outlook markedly lifted consumer confidence

index (CCI). CCI in Q3/14 rose above the threshold of 100 points the

first time in the last 3 years. The upward trend predicts a sharp recovery

in consumption in 2015.

Investment

Total investment made up 31% of GDP, in which State sector accounted

for 40%, non-State sector accounted for 38% while foreign investment

Foreign direct investment

Although foreign investment kept rising, its relative size to the economy

has been a downward trend. Realized FDI mounted to USD12.4 billion,

rising 7.4% yoy. The proportion of foreign investment in total investment

slipped from 30% in 2008 to 21.7% in 2014. FDI as a percentage of GDP

also declined from 12.7% to 6.7% during the same period.

Committed FDI (green field) fell by 6.5% yoy to USD20.2 billion. The

violent riots which resulted to severe damage to foreign investors asset

in a number of industrial zones were the main reason. Manufacturing

sector attracted 72% of total committed capital (USD14.5 billion). It was

followed by real estate sector (USD2.5 billion), construction (USD1

billion).

Additionally, foreign investment was spent on merger and acquisitions.

Investment was concentrated on the financial, real estate, pharmaceutical,

and medical sectors.

4.0%

5.0%

6.0%

7.0%

2011 2012 2013 2014

Source: MOIT, GSO

Consumption, 2011-2014

(% yoy)

Retail, 2014 : 6.3% yoy

Final consumption, 2014 @ 6.2% yoy

0%

5%

10%

15%

20%

25%

.

5.

10.

15.

20.

25.

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

Source: MPI

Foreign Direct Investment,

USD billion and %

Committed, 2014 @ USD20 bn.

Realized, 2014 @ USD12.4 bn.

Realized FDI/GDP, 2014 @ 6.7%

11

Government expenditure

Government budget expenditure equalled to 24.6% of GDP. Compared to

2013, the most significant rise was in debt repayment, which saw an

increase of 14% yoy because of the accrual of medium-term public debt

in the last 3 years. Interest payment has been on the rise and surpassed

principal payment in 2014.

Current expenditure accounting for 71% in the government budget saw a

slight rise of 1.6% yoy. Meanwhile, investment expenditure shrank by

22% compared to last year (nominal terms). The government budget

expressed a lack of discipline on curbing current expenditure. Wages

have been raised annually to offset the fall in purchasing power due to

inflation instead of correcting the market mismatch, while the move to

downsizing budget payrolls hardly yielded any results. Thus, the situation

prompted a sharp cut in investment expenditure.

Net export

Exports saw an increase of 13.6% yoy (9.1% if adjusted for inflation) to

USD150 billion. Exports surpassed imports (12.1% yoy) by a margin of

nearly USD2 billion. Trade openness stabilized at 160% of GDP.

Vietnam has had a wide trade deficit with China and ASEAN while

being in surplus with the EU and the US - a result of an economy with a

weak supporting industries.

The majority of exports came from the foreign-invested sector, such as

phones and accessories, textiles, footwear, machinery and computers.

The domestic sector earned USD48 billion in exports, accounting for one

third of total exports earnings. Exports of the domestic sector

experienced a growth of 10%, lagging behind the foreign-invested sector

with a growth rate of 15%. Apart from export revenues, the efficiency of

the manufacturing industry is considered low since the majority of

assembled products have low added value.

In terms of imports structure, capital goods accounted for 91% of which

machinery and equipment accounted for 38% and industrial supplies

made up 54%. The rest of 9% belongs to consumer goods.

Macroeconomic balance

Budget balance

Budget revenues increased by 3% compared to 2013 thanks to an

increase of 4% in domestic revenue. Revenues from state-owned

enterprises saw the highest growth of 15% compared to last year,

followed by export revenues that increased 14% yoy. Due to increased

revenues, budget deficit shrank compared to 2013 in terms of absolute

value and relative term as a percentage of GDP. Preliminary estimate of

the budget deficit in 2014 placed the deficit at VND154 trillion and

-12

-8

-4

0

4

0

40

80

120

160

200

9

201

0

201

1

201

2

201

3

201

4

Source: GSO

Trade balance, 2009-2014

(USD billion)

Net exports, 2014 @ USD2 bn. (rhs)

Exports, 2014 @ USD150 bn. (lhs)

Imports, 2014 @ USD148 bn. (lhs)

12

3.92% of GDP, compared to VND195 trillion and 5.15% of GDP in

2013.

Declined oil price has caused opposing direction of impacts to budget.

Earning from exporting crude oil, which accounted for 12% of total

revenue, is expected to fall sharply. An estimate showed that a fall of

20% in oil price resulted to a loss of 4% in budget revenue and for every

USD fall in oil price the state budget will suffer a loss of around USD50

million in tax revenue. Moreover, a third of retail petrol price is tax and

fee, thus dropped petrol price will caused further loss in budget earnings

by VND2,600 per litre sold.

On the other hand, consumers and firms will benefit from lower fuel

prices. The supply shock will boost consumption and investment thus

later result to an increase in value added tax and corporate income tax.

However, if the increase in consumption and production tax could not

offset the fall of crude oil earnings, budget deficit will likely increase and

prompt the government to consider raising tax in 2015. Therefore,

reducing budget expenditure has to be done to rebalance and consolidate

budget without affect negatively production and consumption.

Viet Nams position in terms of public debt stays in the safe zone in all

analysis frame work on public debt. Public debt equals to 60.3% of GDP

and is expected to rise to nearly 65% of GDP in 2016 before declining. In

the last 5 years, external public debt decreased from 60% of total public

debt in 2010 to 45% in 2014 due to new loans being financed by

domestic investors.

Balance of payments

Since the official data on the balance of payments is unavailable, based

on foreign exchange reserves (minus gold) position at August 2014, the

balance of payments should have a surplus of USD13.7 billion,

surpassing the past record of USD11.8 billion in 2012. While the current

account balance is fostered by strong flow of remittance, expected to

mount to USD11 billion, the finance account was improved by foreign

investment that was estimated at over USD12 billion.

In Q2, the balance recorded an outflow in the form of money deposits of

about USD3.6 billion, while inflows accrued to USD1 billion. It was

likely due to the end of annual investment cycle when foreign funds

realize profits and divest from an emerging market. Net cash outflow

could be the main factor that elevated demand for USD on the money

market for more than 1 month starting in May, prompting the State Bank

to intervene on the market by injecting USD and rise exchange rate by

1% at the end of June.

0

50

100

150

200

250

0%

2%

4%

6%

8%

Source: calculation from MIT and IMF

Budget deficit, VND trillion

and % of GDP

Deficit, 2014 : VND154.4 trillion (rhs)

% of GDP, 2014 : 3.9% (lhs)

12.1 13.1

25.2 25.5

33.3 35.8 37.0

-10

0

10

20

30

40

Source: UN, SBV

Balance of payments and

foreign exchange reserve

(USD billion)

Reserve (minus gold), Aug14 @ USD37

bn.

BoP, Q2/14 @ USD2.2 bn.

13

Capital market and money market

Capital market

Low inflation rate facilitated a downward adjustment of policy rates in

March by 0.5%. Discounted rate was cut to 4.5% p.a. and refinancing

rate was cut to 6.5% p.a. then remained unchanged. Despite low

inflation, unchanged policy rates showed that the State Bank had a

prudent approach to monetary policy.

Equitization of SOE was promoted in 2014. The publisher raised

VND3.2 trillion from initial public offering of 40 SOEs; however, no

shares have been made to the trading floor. Foreign investors avoided

buying shares in SOE that continued to be under State management,

particularly in energy and transportation which are considered strategic

sector, meaning being prone to interference. They worried about the lack

of liquidity of these stocks and that the ownership rate of non-State

parties would be insufficient to influence the management of the firm.

The bond market raised VND237 trillion, of which 90% are government

bonds (G-bonds). Long-term government bond (10 and 15 years) have

been successfully bid, showing an improvement of market confidence in

the governments capability of repaying long-term debts and expecting

lower bond yields in the future. The average coupon of the bonds at all

maturities fell compared to 2013. In 2014, the government also issued

USD1 billion of G-bonds in foreign currency with coupon of 4.8%.

Corporate bond market also had a vibrant year, raising VND26.7 trillion.

The bond market is considered poorly match its potential as corporate

bonds accounted for a modest proportion compared to G-bonds. Bank

credit remained a primary source of capital for firms.

Money market

The cap on deposit rate in VND was lowered to 5.5%/year for term

deposit less than 6 months. To maintain the balance between the VND

and the USD, the cap on deposit rate in USD was also reduced to

0.75%/year. The interest rate cap created unnecessary burden on small

banks while unaffected bigger banks with excess liquidity. The yield

curve started to sharpen. According to NFSC, the net interest margin fell

to 2.8% from 3.5% in 2011, suggesting that banks must have improved

their financial status.

Credit growth was improved thanks to credit in foreign currency.

Outstanding credit of the banking system is estimated to grow 14% yoy.

Adjusted for inflation, the real growth was around 10%. Credit in foreign

currency, mainly USD, was promoted in 2014 as an exception from the

State Bank when credit in VND grew at a slower speed than expected.

The lower rate equal to 1/3 and the low risk of devaluation

encouraged borrowing in USD. Thus, the growth of credit in USD two to

0.0

4.0

8.0

12.0

16.0

03-1

2

06-1

2

09-1

2

12-1

2

03-1

3

06-1

3

09-1

3

12-1

3

03-1

4

06-1

4

09-1

4

Source: SBV

Operating interest rate,

2012-14 (% p.a.)

Basic, Dec14 @ 9%

Discounted, Dec14 @ 4.5%

Refinancing, Dec14 @ 6.5%

0%

10%

20%

30%

40%

50%

60%

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

Source: SBV

Money supply and credit

growth, 2001-2014 (%)

M2, 2014 @ 15.99% yoy

Credit, 2014 @ 12.62% yoy

0

200

400

600

800

1000

03-1

0

09-1

0

03-1

1

09-1

1

03-1

2

09-1

2

03-1

3

09-1

3

03-1

4

09-1

4

Source: ADB Bonds Online

Bonds Outstanding 2010-14,

VND trillion

Corporate, Sep14 : VND11.8 trillion

Government, Sep14 @ VND790 trillion

14

three-folded the growth of credit in VND. In exchange, the dollarization

rate of the economy could have risen from the record low in decades

(17.8% in April 2014) and credit/deposit ratio in terms of USD to 88%

(June 2014) compared to 80% in terms of VND.

The increased volatile exchange rate forced the State Bank to intervene

twice. In 2014, the official exchange rate increased by 1.4%, which was

below the upper bound set by the SBV (1.53%), while the unofficial rate

increased by more than 2%. The SBV had to intervene by injecting USD

to cool off the heated market no less than 2 times, using about USD1.5-2

billion. During Q4, the official rate increased by nearly 1% to over

21,400 VND/USD while informal exchange rate soared to 21.600

VND/USD.

Compared to a number of currencies in other emerging markets, the

Vietnamese dong seemed to be relatively rigid against the dollar. The

pegging of VND to USD is supported by the stabilized mechanism.

Combined with ample foreign exchange reserves and low

macroeconomic risk, this setting allows the authority to limit the

devaluation of the dong. The shortcoming of this policy was the

appreciation of VND against the USD and other foreign currencies (in

terms of real effective exchange rate). For years, this silent trend

weakened the competitiveness of domestic producers to imported goods

and international competitors. It also provided subsidies for, thus

encouraging, imported goods to consume in the domestic market.

Asset market

Securities

The stock markets saw great volatility in 2014 with two distinct cycles.

Two events shaping the downward trend of the market is the riots related

to the East Sea tensions in early May and rapid decline in oil prices since

September. The index of Ho Chi Minh Stock Exchange (VN index)

started at 504 points and reached the first peak of 609 points in 03/25.

After that, it fell to 508 as of 05/13 before rising to the second peak of

644 points in 09/03. It then dropped steadily to stabilize around 520s in

the final week of December.

Another contributing factor for increased volatility of the stock market in

2014 was margin trading. Because investors used the stock for collateral,

the downtrend must have triggered the automatic sale of stock to raise the

value of collateral (thus reduce leverage rate to safe lever), causing the

supply to surge and price to plummet. Outstanding margin was estimated

at VND9.7 trillion in Q1, down to VND7.4 trillion at the end of Q2,

VND17 trillion at the end of Q3 and was expected to drop to around

VND7 trillion in the end of the year.

20,600

20,800

21,000

21,200

21,400

21,600

21,800

01-1

4

04-1

4

07-1

4

10-1

4

Source: SBV, VCB

Exchange rate, VND/USD

Interbank VCB, sell

Unofficial Lower bound

Reference Upper bound

0

50

100

150

200

250

300

500

520

540

560

580

600

620

640

660

Source: BSC

HOSE VN-index

Volume, million (rhs)

VN index, Dec-17 @ 513 (lhs)

15

Foreign investors were net sellers in the second half of 2014 and

withdrew USD350 million from Vietnam's stock markets - nearly the

amount of inflows in the beginning of the year - due to the restructure of

portfolios in a number of funds and the appreciation of USD. Vietnam

remains a frontier market with strong potential, thanks to a stable macro

economy and prudent policy. The government has implemented reforms

towards a more open market. At the end of the year, the market

capitalization was equivalent to 30% of GDP.

Gold

The gold market was relatively stress-free after adjustments in 2013. SJC

gold price reached a peak in Q2 (VND37 million/tael) before transiting

into a downward trend in a correlation with the appreciation of the USD

and the fall of other metal and commodity prices. At the end of 2014,

SJC gold price stayed at around VND35 million/tael, rising by VND100

thousand per tael compared to the end of 2013. The domestic gold

bullion maintained a high premium (VND2-4 million/tael, or 5-10%)

during 2014.

Demand for gold subsided in 2014. According to World Gold Council,

gold demand has declined by 25% yoy, mainly due to a sharp fall in

investment demand. Demand for jewellery also saw a moderate decline.

Real estate

The market experienced a broad improvement in all segment. The

liquidity increased markedly in affordable housing segment. The supply

and demand statistics both showed a three-year high. Southern market

proved to improve faster than the North. The supply was reportedly on a

decline, prompting price hikes in all market segments. On the other side,

inventory remained high in projects that have insufficient infrastructure

and utilities, plus weak liquidity.

A new amendment added more aids to boost the disbursement of the

housing credit support package. Targeted buyers are expanded;

borrowing period is extended to 15 years. The upbeat of real estate

market attracted more foreign investment, which committed to invest

USD2.5 billion in real estate projects and another USD1 billion to the

construction sector.

29.0

31.0

33.0

35.0

37.0

39.0

Source: SJC

Gold price, VND million/tael

Domestic (SJC)

International (converted)

16

Economic prospect and policy suggestion

Economic prospect for 2015 and beyond

Unsustainable growth and low inflation rate will prompt the ECB and

BoJ to maintain accommodative monetary policy. As normalization of

monetary policy taking place in the US, the rise of interest rate is

inevitable, although it is expected to remain low in the short term due to a

low inflation rate and staggering global economic growth. This backdrop

will change the global interest rate structure and trigger the shift of

capital. Combined with heightened geo-political risks, it might foster the

flight of capital from emerging markets (and destabilize these countries

currencies) to more developed markets. The impacts of this shift on Viet

Nam is considered limited since the Vietnamese capital market is not

very open and connected to the global market. Moreover, the increasing

foreign exchange reserves along with the decreasing ratio of foreign

currency-denominated loans put Vietnam in a relatively safe position

monetarily.

The normalization of monetary policy in the US along with expectation

of lower economic growth in Europe and China will contribute to the fall

of prices of raw materials. Commodity prices are expected to remain low

in 2015 due to the fact that the aforementioned trends will not reverse

any time soon. On the one hand, lower prices will benefit domestic

consumption and manufacturing (by lowering input costs); on the other

hand, the fall will reduce exporters revenue.

Since Vietnam-Russia economic relations are relatively small in

compared to other economic partners, the effects of Russian recession in

2015 on the Vietnamese economy will be contained. Tourism and trade

will be moderately affected. In terms of trade, Vietnam will benefit from

the depreciation of the Russian currency in rouble-denominated imports.

Setbacks from USD-denominated contracts are not considerable.

In mid-term period, rice production might face stronger competition from

Myanmar, while Vietnams conventional markets including Indonesia

and Philippines are boosting their domestic production. Vietnam plans to

push forward its export given this development; however, rice export

industry is controlled by SOEs, particularly in government-to-

government contracts. The revised Land Law raises the land lease terms

to 50 years, which raises the opportunity to build up large-scale farms

and diversify crops. TPP and Vietnam-EU FTA, if successfully signed,

will open North American and European markets for Vietnamese wood

and seafood products. However, conforming to the EU and USs

standards for export products remains a stark challenge for Vietnamese

export enterprises.

17

Industrial manufacturing continues to be supported by the increasing

presence of foreign-invested plants to capitalize the opportunity brought

by bilateral and multi-lateral free trade agreements. Supporting industries

remain a weak point, which increases the imports of industrial supplies

and capital goods. Thanks to the shift of FDI from China to Southeast

Asia, in the future more factories may set up in Viet Nam. Therefore,

ensuring the supply of raw materials for the next development period is

Vietnams emerging demand.

Decline in revenue from oil and gas could be offset by increased revenue

from consumption taxes and corporate income taxes, due to increasing

production and consumption forested by reduced production costs. The

negative effects of the decline in oil prices on the economy might not be

huge because Vietnam has diversified economic base and is no longer

dependent on the oil industry since two decades ago. Meanwhile, lower

gasoline price is considered a boost to the production and consumption.

Vietnam is also a net importer of energy in the form of oil and petroleum,

therefore declining oil prices would be beneficial rather than detrimental.

In contrast, the increase in electricity prices by 9.5% as proposed by the

Vietnam Electricity (EVN) will be a negative shock to the economy,

especially when many manufacturing industries are seeing improvement

in momentum of production.

Consumer spending will strengthen in 2015 as the improvement in

employment and income becoming clearer. The growing middle class is a

supporting factor for consumption in the medium term. The opening up

of domestic retail market is a positive shock in the supply side; however,

the future of Vietnamese goods in FDI retailers remains a question.

Vietnam is benefiting from the demographic dividend. In the medium

term, Vietnam will have a largest and the youngest labour force in a few

decades. Therefore, job creation and skills training for young workers

present a challenge to growth and economic transformation.

Given the international and domestic conditions, early forecast put

Vietnams economic growth at 6.2% in 2015 in business-as-usual

scenario. This growth rate exceeds 2014s rate by a margin of 0.2

percentage points. Inflation rate at year end is projected to reach 4%,

considerably higher than 1.84% at December of 2014. Low inflation

allows the government to adjust public utilities price, including a plan for

raising retail electric price. It is expected that the change will be made in

two steps, 5% each. Electricity price hikes is more likely to have a strong

impact on production cost than consumer prices.

In case of sharper oil price which is not very likely, macroeconomic

balance will be severely affected, thus economic growth might lose 1-1.5

percentage points, while inflation rate fell an extra 4-6 percentage points.

18

If monetary policy is loosened further, combined with stronger elasticity

of consumption and investment to low interest rate, economic growth

might gain extra 0.1 to 0.2 percentage points.

Budget deficit might increase in 2015 if consumption and investment

expenditure do not respond strongly to low inflation. Because benefits

from lower oil prices will only be realized more clearly in the medium

term, the government would be more tempted to raise taxes or create

inflation (through easing monetary policy or increasing public utility

prices) to offset the loss in oil revenue if the budget spending is not

contained, which is an unwise decision. Negative impacts created by

increased taxes or inflation could damage outlook and slow down

economic recovery.

The trade balance is expected to have deficit in 2015 albeit relatively

low. Imports are expected to increase rapidly to take advantage of lower

input costs. Exports of raw and semi-processed goods will be affected by

fluctuations in global commodity prices and earnings are likely to

decrease compared to last year. In contrast, exports of manufactured

goods will maintain double-digit growth. Overall, the balance of

payments is expected to have large surplus thanks to stable remittances

and foreign investment. To control the exchange rate the State bank will

have to continue buying foreign currencies and perform sterilization,

otherwise VND will likely rise against the dollar.

Bad debts could rise in 2015 due to following loan classification in

Circular 02 and 09. Developing a structure for the debt instrument market

and raising capital for VAMC are two key tasks in the disposal of non-

performing loans in 2015.

Circular No.29/2013, which promotes foreign currency credit, was

extended by the State Bank in Circular No.43/2014 with a few

adjustments. Credit growth in 2015 therefore can reach 12-14% yoy, in

which credit in foreign currencies may contribute less if borrowing

interest rates in VND appeared more comfortably for enterprises.

With Circular No.36/2013, which specifies the safety in operation of

credit institutions, banks must reduce cross-ownership and bring the NPL

rate to less than 3%. Adjustment process can lead to more M&A in the

financial market, besides on-going M&A cases. The SBV needs to

increase supervision in order to ensure financial standards after M&A,

because credit risk will be concentrated rather than dispersed. The

amount of short-term low-interest capital can redirect to the production

sector instead of the securities market, although risks may vary.

The National Assembly issued a resolution in 2015 that the government

will not issue bonds that mature in less than 5 years. The suspense of

19

issuing medium-term bonds is not practical since 80% of issued G-bonds

in the last 3 years have a maturity of 2-3 years and the market still has

high demand. Most investors are domestic commercial banks, with the

goal of revolving their capital in the medium term while waiting for a

recovery in credit demand from the private sector that pays higher

interest rates than G-bond. The government should account for the needs

of the market instead of completely stopping issuing G-bonds in medium

maturities.

The Amended Housing Law promulgated by the National Assembly at

the end of 2014 allows foreign individuals to own houses in Vietnam.

Effective on July 2015, this law is expected to stir the medium and

luxury segments of the real estate market, which hardly saw recovery in

the past years. Supply of apartments will continue to rise in order to

match the recovery in demand in the coming years.

Policy suggestion

Given that falling interest rates meaning less to firms, policy makers need

to promote further administrative and institutional reforms to facilitate

investment and production, apply fiscal consolidation by reducing current

expenditure, reduce investment risks to allow interest rates to fall in a

healthy manner, which encourages sustainable economic growth.

The government needs to firmly commit that they will not perform the

two above options (increasing taxes and create inflation) which are

beneficial only to the budget at the expense of consumers and investors.

It should instead wait patiently for economic recovery driven by falling

oil prices. The government must show commitment to reforms to boost

growth, refrain from raising current expenditure, and reduce

administrative procedures in order to slowly regain budget balance. The

key is to maintain the trust and expectations of the market in the vision

and capability of the government.

Given low inflation rate and ample liquidity, commercial banks will

automatically adjust their interest rates. The SBV should lift the ceiling

rates for deposits and loans, since the regulations show decreasing

significance. The SBV may consider reducing the interest rates on the

open market (5.5%) and rediscount rate (4.5%) to support the liquidity of

small-sized banks and their restructure activities.

The SBV should be prudent with foreign currency-denominated credit as

credit/deposit in foreign currency has risen to 88%. Pursuing this policy

may result to imbalances in the money market. An upper bound is placed

on USD-denominated deposit, which reduces the incentive to deposit.

Promoting foreign currency-denominated credit can ease the burden of

the banking system in terms of credit growth, yet it seems to conflict with

20

the goal of reducing the rate of dollarization in the Vietnamese financial

system.

After years of high inflation the pegging of VND to USD, which tended

to cause an overvaluation of VND, has been detrimental to exporters and

placed domestic goods in a disadvantage position vis--vis import goods.

This impact may have multiplied in the second half of 2014 due to the

rise of USD against many currencies in the world, which in effect

strengthened VND and made import goods cheaper. In recent years

adjusting exchange rate has been too cautious and could not raise the

competitiveness of the Vietnamese economy. The State bank should

depreciate VND by 3 to 4% in the next 2 - 3 years, through a number of

steps with an increment of 1-1.5%, in order to make domestically

manufactured goods more competitive.

21

Disclosure appendix

Analyst Certification

The following analyst(s), economist(s), and/or strategist(s) who is(are)

primarily responsible for this report, certifies(y) that the opinion(s) on the

subject or issuer(s) and/or any other views or forecasts expressed herein

accurately reflect their personal view(s) and that no part of their

compensation was, is or will be directly or indirectly related to the

specific recommendation(s) or views contained in this research report::

Nguyen Duc Thanh, Nguyen Thi Thu Hang, Ngo Quoc Thai.

This document has been prepared and is being distributed by Viet Nam

Institute for Economic and Policy Research (VEPR) and is intended

solely for the customers of VEPR and is not for publication to other

persons, whether through the press or other means. Advice in this

document is general and should not be construed as personal advice.

Additional disclosures

This report is dated as January 15, 2015.

All data included in this report are dated December 27, 2014 unless

otherwise indicated in the report.

VEPR has procedures in place to identify and manage any potential

conflicts of interest that arise in connection with its Research

Department. Any confidential and/or sensitive information is handled in

an appropriate manner.

22

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