Domestic consumption: We expect real retail sales to grow by 6.5%-7% YoY in February, supported by softening inflation. High inflation in January 2017 lowered real retail sales growth to 6.7% YoY, the lowest level over the last three years.
GDP: We expect 6.5% GDP growth in 2017. The recovery of agriculture and global oil prices, together with the resilience of export-oriented manufacturing and consumption, will be the key drivers for economic growth this year.
In a widely anticipated move, the US Federal Reserve Bank (the Fed) increased its benchmark Fed Funds rate by 25 basis points (0.25%) on December 15. In a less anticipated move, it announced plans for three more hikes likely in 2017. The dong, which has declined 1.8% since the US election on November 8, declined 0.15% for the day. We see continuing pressure on the dong through the end of 2016, but with devaluation not exceeding 2% for the year.
Domestic consumption: Although real growth slowed in 11M 2016 YoY due to higher inflation, it was still higher than the same period of the four years prior to 2015. As 2017’s Lunar New Year comes in mid-January 2017, December should see strong growth of retail sales, leading to an improvement in the annual rate.
Recently, Vietnam’s foreign exchange market has experienced its strongest turbulence since the beginning of this year. The USD/VND exchange rate has maintained a steady uptrend over the last two weeks. The central bank’s reference rate on November 24 was set at VND22,131/USD, up VND13 after slightly falling to VND22,118/USD on November 23.
Domestic consumption: Real retail sales growth was 7.4% YoY, a slowdown from 9M 2016. Vietnam’s consumer confidence index of 107 in Q3 2016, unchanged from Q2 2016, indicated promising future consumption.
GDP growth: The economy grew by 5.93% YoY in 9M 2016, a slowdown from 6.53% in 9M 2015 due to agricultural and mining output reductions in H1 2016. However, the quickening quarterly GDP growth rates (Q1 2016: +5.48% YoY, Q2 2016: +5.78% YoY, Q3 2016: +6.4% YoY) indicated a typical and healthy year-end run-up. The manufacturing and services sectors were the main economic drivers in the first three quarters. We maintain our current forecast of FY16 GDP growth at 6.27% with the economy expanding by
Price declines in food and transportation categories kept inflation at seven-month low. August CPI slightly rose by 0.1% MoM and 2.57% YoY. This has been the lowest monthly inflation since January 2016.
The agriculture, forestry, and fishery sector incurred negative growth of 0.18% in the first half of 2016 because of a reduction in agricultural output (-0.78%) caused by the historic cold spell in the North and drought and saltwater intrusion in Mekong Delta.