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Vietnam's economy has grown rapidly, but inflation has also surged, approaching the upper limit.

TraderKnows
TraderKnows
05-29

Vietnam's economic growth has been exceptionally high in recent years, but inflation has been rising alongside the economy. Recent data indicates that inflation has nearly reached the upper target limit.

Official data from Vietnam shows that the annual inflation rate rose to 4.44% in May, approaching the government's target upper limit of 4.5% for the year. This may pose challenges to promoting credit growth to boost economic activity.

As a regional industrial center, the Southeast Asian country also reported strong growth in exports and industrial output this month, but rising inflation may cause concern for the authorities.

Consumer prices rose by 4.4% year-on-year in April, increasing by 3.25% for the whole year of 2023.

Vietnam's economic growth target for this year is 6.0%-6.5%, higher than last year's 5.05%.

The State Bank of Vietnam is aiming for 15% credit growth to help achieve its growth targets, but banks have struggled to increase their lending this year.

Data from the central bank, as quoted by national media on May 10, showed that the total outstanding loans of banks had grown by 1.95% since the beginning of the year.

Oxford Economics said on Wednesday that while exports are expected to continue to grow strongly, the boost to GDP might be limited.

"The interest rates of the US, Vietnam's largest import market, are likely to remain high, and the global external environment generally appears weak," Oxford Economics stated.

"We expect GDP growth in 2024 to be below the target of 6.0-6.5%," it added.

Other data released on Wednesday indicated that exports in May are estimated to grow by 15.8% year-on-year to $32.81 billion, driven mainly by exports of electronics and smartphones, according to the General Statistics Office (GSO) of Vietnam.

According to GSO, imports for the month are estimated to increase by 29.9% year-on-year to $33.81 billion, resulting in a trade deficit of $1 billion in May.

Smartphone exports in May are estimated to increase by 50.6% year-on-year to $4.4 billion, while electronics exports are projected to grow by 31.5% year-on-year to $5.9 billion.

GSO reported that industrial output grew by 8.9% year-on-year in the month, with retail sales increasing by 9.5%.

Oxford Economics stated that the central bank is expected to maintain its 3% discount rate for the remainder of the year but added that "the key risk to policy rates lies in the Vietnamese dong, which has depreciated by an estimated 4.4% against the US dollar this year."

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Inflation

Inflation refers to the phenomenon where the purchasing power of a country's (or region's) currency decreases, leading to a general rise in the prices of goods and services. It is reflected in the fact that, over a certain period, the same amount of money can only buy fewer goods and services.

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