The Hanoitimes - Despite the significant upside surprise to Vietnam`s GDP growth rate in first quarter at 7.4% year-on-year, pull-back is expected in growth momentum towards a more sustainable rate of 6.8% for 2018, followed by 7.0% in 2019, ANZ has said in its latest report.
In terms of production, the agricultural sector expanded by 4.1% year-on-year, the fastest rate since the series was rebased in 2012. Industry also bucked historical trend by accelerating to 10.1% year-on-year.
More recently, growth in industrial production has already eased. The introduction of a new product in 2017 pushed up growth in consumer electronics, according to the report.
However, now that production has normalized, favorable base effects have started to fade. In the absence of additional production capacity this year, ANZ forecast real industry growth to moderate.
Meanwhile, the growth in merchandise exports has eased, reflecting the trend in manufacturing production. Nevertheless, with an average rise of 15.8% year-on-year as of May, Vietnam's exports remain robust, the report noted.
On the other hand, import growth is lagging the expansion in exports, leading to a US$3.4 billion trade surplus. 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-related sector.
Even so, the widening of the overall trade surplus has aided the central bank in rebuilding its foreign exchange (FX) reserves. As of May, the government reported that FX reserves have reached US$64 billion, roughly 3.5 months of import cover.
Newly registered FDI continues to come in, although at US$4.7 billion as of May, it is lower than the US$5.6 billion print over the same period last year, according to the Foreign Investment Agency.
After the US withdrew from the TPP agreement, the remaining members of the trade pact are now pursuing 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, the report noted.
Inflation has been on a gradual uptrend, reaching 3.9% year-on-year in May. Food prices turned a corner at the start of the year, implying that all major CPI components are now contributing positively to headline inflation.
According to the report, health-related prices have only been adjusted 3.9%, compared to an increase of 16.8% over the same period last year. If the adjustments are delayed further, there will be heightened risks of higher price increases down the road. In the past, when health prices were capped over a prolonged period, the subsequent changes tended to be dramatic.
The report expected inflation to rise to 3.6% in 2018, still below the maximum threshold of 4% set by the government early this year. ANZ's report expected inflation to remain on an upward path, averaging 4.2% in 2019.