VERP research: Growth up, inflation too

Production chain at the Kien Giang Import & Export Joint Stock Company in Kien Giang province.(Source: VNA)

Hanoi (VNA) – Research findings by the Vietnam
Institute for Economic and Policy Research (VEPR) show that Vietnam’s economic
growth in the third quarter was the highest in seven years, though overall
inflation also started inching up in August and continued throughout September
after a sharp decline since the start of the year.

According to Nguyen Duc Thanh, VEPR
director, quarterly growth for the third quarter gross domestic production was
7.46 percent, an improvement of 0.27 percentage points from the second
quarter, with a forecast of 7.12 percent for the fourth quarter, bringing the
expected annual growth rate to 6.64 percent.

In particular, agricultural and service
sectors have improved their performance, with construction and manufacturing
industries growing 12.77 percent quarter on quarter. Other industrial
productivity indicators were also positive.

In the fourth quarter, consumer demand
and investment demand is expected to increase sharply as the pace of construction
investment disbursement is accelerated. At the same time, exports will likely
continue to rise sharply due to favourable developments in the world economy,
as well as global trade growth.

Third quarter consumer price index
(CPI) growth has increased from 2.52 percent in July to 3.4 percent in
September. This can be attributed to 20 provinces increasing their overall
health care service fees for patients without insurance by 58.08 percent in
September.

Furthermore, 46 provinces and cities
increased tuition fees in August and September, which in turn pushed the
education sector’s price index up 7.92 percent in September compared to the
same period in 2016.

The transportation price index has also
increased after the adjustment of gasoline prices in the third quarter, with
growth rates of 5.7 percent and 6.7 percent in August and September,
respectively.

With food price recovery, credit growth
and disbursement pressure, as well as upward adjustment in electricity and
public service prices, the fourth quarter inflation rate will mostly likely
increase to 4.16 percent, exceeding the annual target rate of 4 percent.

VEPR research also indicates that a
Prime Ministerial decision allowing Electricity of Vietnam (EVN) to adjust the
average electricity retail price from 3 to 5 percent based on objective
price fluctuations may also create further inflationary pressure.

Another indicator also reinforces the
view that inflation will increase, said Thanh, mentioning that while the
targeted annual credit growth is 21 percent to ensure an annual overall growth
rate of 6.7 percent, up until the third quarter, actual credit growth was
around 10 percent.

Thus, the credit growth rate will need
to increase 10 percent in the fourth quarter to meet the Government’s planned
growth rate. This is equivalent to an infusion of around 200 trillion VND (8.88
billion USD) into the economy, which poses a threat not only to inflation but
also hints at non-performing loans in the future.

On the other hand, core inflation has
dropped slightly against the second quarter to 1.32 percent, widening the gap
to full inflation and reflecting the State Bank of Vietnam’s policy of prudent
money supply.-VNA



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