The authorities' determinedimplementation of stabilization measures over the past yearhas helped to avert a macroeconomic crisis. If thedeterioration of the macroeconomic environment in 2010-11was rapid, the improvement in the situation in the pasttwelve months has been equally swift. Regainingmacroeconomic stability has been costly, but not stabilizingthe economy would have led to even bigger losses. Real grossdomestic product (GDP) growth has decelerated from 6.8percent in 2010 to 5.9 percent in 2011, and further to 4percent in the first quarter of 2012 as higher prices haslowered domestic demand, affecting sectors such asconstruction, manufacturing and utilities. Industrialproduction has slowed, inventory for key industrial productshas accumulated, and a number of small and mediumenterprises have either closed, been liquidated ortemporarily suspended their operations. While thestabilization efforts may have contributed to a cyclicalslowdown, Vietnam's trend growth rate has been on adownward path for the last 5-6 years, largely on account ofthe slow pace of structural reforms. Inefficiencies instate-owned enterprises, banks and public investments havebeen a drag on the country's long-term growthpotential. With gains from macroeconomic stabilization stillrecent and fragile, especially in an external environmentthat is fraught with uncertainty, the government needs to becareful not to shift to an expansionary stance prematurely.
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