With first quarter GDP growth at 7.4 per cent year-on-year, ANZ expects some pull-back in growth momentum towards a more sustainable rate of 6.8 per cent for 2018 as a whole, followed by 7.0 per cent in 2019. According to the ANZ Greater Mekong Outlook report released on June 1, first quarter growth was unseasonably strong, having tended to be at its lowest at the beginning of previous years and followed by an acceleration over the course of the remainder of the year.
In terms of production, the agricultural sector grew 4.1 per cent year-on-year; the fastest rate since the series was rebased in 2012. Industry also bucked historical trends by growing 10.1 per cent year-on-year.
Growth in industrial production has already eased. The introduction of new products in 2017 pushed up growth in consumer electronics, but now that production has normalized, favorable base effects have started to fade. In the absence of additional production capacity this year, ANZ expects real industry growth to moderate.
Growth in merchandise exports has also eased, reflecting trends in manufacturing production. Nevertheless, with an average increase of 15.8 per cent year-to-date year-on-year as of May, Vietnam’s exports remain robust. Imports, meanwhile, haven’t grown at the same pace, leading to a $3.4 billion trade surplus year-to-date. While export production is still supportive of growth, the net contribution of domestically-owned production has been limited. Indeed, the improvement in the trade balance is mostly attributable to the FDI sector.
Even so, the widening of the overall trade surplus has aided the central bank in rebuilding its forex reserves, with the government reporting reserves of $64 billion as of May, or roughly 3.5 months of imports.
Newly-registered FDI continues to pour in, though at $4.7 billion as of May is lower than the $5.6 billion in the same period last year.
After the US withdrew from the TPP, the remaining members have been negotiating the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). With Vietnam expected to uphold its commitment to pursue significant economic reforms, the prospects for more FDI are positive, ANZ believes.
Inflation has been on a gradual uptrend, reaching 3.9 per cent year-on-year in May. Food prices turned a corner at the beginning of the year, implying that all major CPI components are now contributing positively to headline inflation. Although transport costs have risen, they have not fully reflected the trajectory of global fuel prices. Meanwhile, health-related prices only rose 3.9 per cent year-to-date compared to 16.8 per cent year-to-date in the same period last year. If increases are delayed further, there will be heightened risk of higher price increases down the line. In the past, when health prices were capped over a prolonged period, the subsequent changes tended to be dramatic.
As such, ANZ expects inflation to stand at 3.6 per cent in 2018; still below the maximum threshold of 4 per cent set by the government early this year. The bank then expects inflation to remain on an upward path, reaching 4.2 per cent in 2019- Vietnam Economic Times.
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