Vietnam’s gross domestic product (GDP) will likely deliver a growth rate of 6.5%-6.7% in 2016 in a neutral scenario, compared to 6.68% in 2015, as the country deepens its international integration, Bao Viet Securities Company (BVSC) has said in its latest macro report.
The country’s participation in a number of free trade agreements (FTAs) such as the ASEAN Economic Community (AEC), the EU-Vietnam FTA, Vietnam-Korea FTA and the Trans-Pacific Partnership (TPP) will fuel its economic growth in 2016 as well as in the coming three to five years, according to BVSC.
“Opportunities will be open for all sectors, but foreign-invested enterprises will still take the lead, shifting their investments and moving their manufacturing facilities [to Vietnam] to capitalize on FTAs and low labor costs in Vietnam,” BVSC analysts noted.
Pledged foreign direct investment (FDI) is expected to gain 10%-12% this year. FDI rose 12.5% year-on-year to $22.76 billion in 2015.
In addition to initial outcomes of the ongoing economic revamp, a stronger recovery of household spending and private investments, stemming from buoyant GDP growth and macroeconomic stability, will lend support to the local economy, they said.
The brokerage house warned that inflation could accelerate this year due to a number of factors. They include the possibility of global commodity prices bottoming out, adverse effects of El Nino phenomenon, the delay effect of the State Bank of Vietnam (SBV)’s expansive monetary policy, and higher consumer demand.
Vietnam’s consumer price index (CPI), a gauge of inflation, is predicted to increase 3%-5% this year, compared to 0.6% last year, BVSC said.
The dong is seen to weaken by 3%-4% in 2016 against the U.S. dollar in 2016, based on presumptions that Vietnam’s overall balance of payments posts a surplus of $5 billion, the U.S. Fed lifts interest rate by 1% and the continued devaluation of the Chinese yuan.
Interest rates on dong-denominated deposits are expected to rise 0.6-1 percentage point this year, driven by rapid credit growth in 2015, inflation expectations to be revised gradually to 5%-7% for the 2016-2020 period, and the SBV maintaining a spread between interest rates in the dong and the greenback to ease upward pressure on the dong, according to BVSC.
Securities Company forecast in a report last week that Vietnam’s GDP to grow 6.7%-6.9% and consumer prices to increase 1.8%-3.5% this year. The country is expected to run a trade deficit of $4 billion-$6 billion while the USD
rate would likely weaken by 5%-8%.