In particular, inflation in December spiked to 5.2% y-o-y, breaching the State Bank of Vietnam’s (SBV) 4% inflation ceiling for the first time in 2019.

Inflation in Vietnam May Surge in Near Term, Economists Worry
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Despite an overall rosy picture of Vietnam’s economic performance, significant challenges for the economy remain, with the most notable one in inflation, according to HSBC in the latest report named “Vietnam at a glance”. Despite headline inflation moderating considerably to 2.8% y-o-y in 2019 from 3.5% in 2018, inflation momentum has jumped sharply in the last two months of 2019. 
In particular, inflation in December spiked to 5.2% y-o-y, breaching the State Bank of Vietnam’s (SBV) 4% inflation ceiling for the first time in 2019. Sequentially, headline inflation rose 1.4% m-o-m, due to surging pork prices as a result of the African swine fever. 
As of 24 December 2019, pork prices rose 86% to $4 per kilogram from January 2019. Despite the authorities ’ efforts to increase pork imports, surging pork prices are likely to continue to bring upward pressures to inflation in the coming months, due to a confluence of factors including higher pork demand in the run-up to the Tết holidays and likely competition with mainland China on pork imports as the latter has recently lowered pork tariffs. In addition, an increase in the minimum wage from 1 January 2020 will also likely transmit some upward pressures to inflation.
Given the upside surprise in December inflation, we are revising up our inflation forecast for 2020 to 3.8% y-o-y (previous: 3.5%), much clos er to the SBV’s “below 4%” target. Therefore, rising inflationary pressures may complicate the central bank’s eas ing decision. HSBC initially had expected the SBV to deliver a 25bp cut in 2Q20. However, given rising inflation momentum, we now forecast inflation to remain above 4% in 1H20, before dropping below 4% in 3Q20. 
Thus, HSBC now expects the central bank will likely delay its rate cut to 3Q20 when inflation is set to begin to ease again. Meanwhile, elevated inflation could also affect the government’s efforts to continue with its healthcare reforms , which would entail further cost increases for the public, and thus stall the progress towards further budget consolidation.
Moreover, despite widely regarded as being the main beneficiary of the US-China trade tensions, persisting external headwinds remain the biggest risk to Vietnam’s growth. As an economy for which exports exceed 100% of its GDP (though with significant import content) and that is highly exposed to demand of its top three export destinations, the US, mainland China and the EU, a possible deceleration in their 2020 growth would weigh on Vietnam’s growth. 
In fact, recent high frequency data have shown some signs of moderation in Vietnam’s factory activity. Growth of manufacturing industrial production (IP) slowed sharply, decelerating from 9% y-o-y on average in the first ten months to 2.5% in the last two months of 2019. Meanwhile, the December PMI also moderated slightly to 50.8 from 51.0 in November.
Despite new orders extending their fast expansion, both overall output and new export orders fell below 50, signalling a likely moderation in external demand.