Vietnam economy likely to grow faster in 2017, CPI to pick pace

Vietnam economy is expected to grow faster in 2017 after a slow start in the previous year in which economic growth was weighed down by the worst ever drought in decades, growth momentum has steadily picked up as the year go along.

The country’s GDP growth for 2017 is likely to average 6.6%. This will be stronger than the 6.2 percent growth posted last year. Indeed, after a slow start in the previous year in which economic growth was weighed down by the worst ever drought in decades, growth momentum has steadily picked up as the year go along, reported DBS Group Research.

The agriculture sector, which bore the blunt of the drought, turned from a contraction of 1.2 percent in first-quarter of 2016 to an expansion of 3.5 percent in the final quarter of the year. While growth in the industry sector has moderated to 7.1 percent in 2016 (versus 9.4 percent in 2015) amid weaker external demand, the construction and services sectors had picked up the slack. Construction sector growth reported another year of double-digit growth (10 percent) while the services sector (approx. 39 percent of GDP) expanded by 7.0 percent, from 6.3 percent previously, they added.

Meanwhile, inflation has persistently crept higher in 2016. CPI inflation rose from 0.8 percent in Jan to 4.7 percent in December, and average 2.7 percent for the whole year. The drought impact on food prices, significant cuts in education and healthcare subsidies to ensure fiscal sustainability were some of the primary reasons for the rise in inflation.

However, we reckon that inflation will peak in the coming few months as base effects set in. Barring any weather-related factor or further cuts in subsidy, inflation will likely moderate gradually throughout the course of the year. Yet, overall inflation is expected to average a higher 3.4 percent compared to last year. Relatively higher energy prices will be the reason for the inflation uptick.