Vietnam ’s economy is dangerously overheated, as one of the region’s biggest market reform success stories threatens to become one its biggest busts.
Inflation jumped 25.2% month-on-month in May, the stock market is down about 63% over the same period last year, and many fear a looming property bubble could soon burst with disastrous consequences for local banks. Meanwhile, a growing trade deficit threatens to morph into a full-blown balance of payments crisis – there is already downward pressure on the dong.
Investment bank Morgan Stanley recently warned that loose bank lending has created a banking crisis. International ratings agency Fitch in May lowered its outlook for Vietnam’s sovereign debt to “negative” from “stable,” stating that the country’s response to rising inflation “has been too slow and too small.” It reiterated those warnings on Friday.