Singapore-headquartered United Overseas Bank (UOB) has kept its 2018 growth projection for Vietnam unchanged at 6.8% despite a robust rate of economic expansion in the first half of this year.
The move is due to the “high base effects which will exert a statistical dampener on growth, particularly in 2H18,” the bank said in a recent report.
UOB economist Manop Udomkerdmongkol pointed out that high transport and energy infrastructure investments remain key growth drivers. Industrial production will be boosted by continued opening of new multinational enterprises in labor-intensive, export-oriented manufacturing and processing industries.
Vietnam’s economy grew 6.8% in 2Q18 and 7.1% in 1H18, bringing the six-month growth to 7.08%, the fastest pace since 2011, according to official data. The growth in 1H18 was mainly driven by industry, construction and services, particularly wholesale and retail, transport, banking and finance, education and healthcare.
Exports and tourism will benefit from a broad-based global recovery. Private consumption should be supported by rising household income and an expansion in private credit.
Nevertheless, the economy will still be facing economic risks, especially an increase in global protectionism. If the trade tensions between Vietnam’s two largest trading partners – the US and China – were to worsen, it would lead to negative spillover effects on Vietnam’s growth prospects, the economist noted.
Looking ahead, in terms of monetary policy, the State Bank of Vietnam (SBV) is expected to keep refinancing rate on hold until at least the end of this year, the economist wrote.
At the current benchmark rate, the monetary policy stance remains conducive to the continuation of economic expansion. The strong growth eases pressure on the government and the SBV to add more stimuli so as to achieve annual growth target of 6.7% under the 2018 socio-economic development plan.
As a consequence, another policy rate cut may not be on the cards at the central bank even as other Asian central banks have started to pursue monetary policy normalization by raising policy rates gradually.