June 15, 2012 / 3:20 AM / in 6 years

UPDATE 2-Vietnam economy slows in H1, loans below target

* Vietnam forecasts slowing growth at 4.31 pct in H1

* HSBC says Vietnam set for lowest annual growth since 1999

* Inflation continues to ease-govt

* Lending in 2012 to rise 12-13 pct to encourage growth (Adds HSBC forecast, quote)

By Ho Binh Minh

HANOI, June 15 (Reuters) - Vietnam’s economic growth is forecast to slow to an annual pace of 4.31 percent in the first half of this year, even though second-quarter growth accelerated to an estimated 4.5 percent, Deputy Prime Minister Nguyen Xuan Phuc said on Friday.

Vietnam was continuing to win the battle against inflation, with the consumer price index rising an estimated 3 percent in the first half, the lowest rate for the period in three years, said Phuc.

Vietnam has been struggling with the highest inflation in Asia, peaking at 23.02 percent in August 2011. The government is targeting 7-8 percent for the year, with May inflation at 8.34 percent, the first fall below 10 percent since October 2010.

“Our economy has step by step passed a very difficult period, despite many barriers and challenges ahead,” Phuc told a televised National Assembly session.

Hanoi is targeting annual GDP growth around 6 percent, but HSBC on Friday forecast annual 2012 growth at 5.1 percent.

“Vietnam is likely to have its lowest growth number since 1999 this year,” said Hong Kong-based HSBC economist Trinh Nguyen.

Rating agency Standard & Poor’s on Wednesday raised its outlook on Vietnam’s sovereign rating to stable from negative, citing its renewed confidence in the country’s price stability.

Vietnam will pump more cash into its economy in the second half of this year to help ease the funding burden faced by businesses so far this year, which would lead to annual credit growth of 12-13 percent for the whole of 2012, Phuc said.

Around 21,800 firms shut operation or closed down in the first five months of 2012, up 9.5 percent from a year ago, he said.

Between July and December, the government will pump 21 trillion dong ($1 billion) from state budget investment into the economy, translating into a credit growth of 2 percent per month, along with loans from commercial banks, Phuc said.

Vietnam initially aimed for an annual lending expansion of 15-17 percent, against growth of 14.4 percent last year, but loans have been growing very slowly so far this year, partly due to high interest rates and banks trying to avoid bad debt.

In May, lending in Vietnam had a positive growth for the first time after a negative expansion between January and April, Phuc told the parliament.

The Vietnamese government will speed up the restructuring process of banks, “adopting quick measures to deal with bad debt in the banking system and corporate bad debt”, Phuc said. ($1=20,940 dong) (Editing by Michael Perry)

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