HSBC: V’nam inflation to moderate to 2.7% in 2019

AFTER recording its slowest pace in more than three year last month, Vietnam’s inflation is forecast to hit only 2.7 per cent this year after standing at 3.5 per cent last year.

HSBC analysts made the forecast in its Vietnam at a Glance report released last week.

Vietnam’s headline inflation last month moderated to 2.2 per cent year-on-year, from 2.9 per cent in May. This marks not only the lowest year-on-year inflation growth this year, but the slowest pace in more than three years.

Prices fell 0.1 per cent month-on-month, reversing the incremental increases over the past two consecutive months. The main drag came from lower transport prices, falling 1.7 per cent monthon-month, primarily due to declining global oil prices.

Meanwhile, housing and construction materials prices fell 0.2 per cent month-onmonth and food costs remained steady at 0.1 per cent. In addition, healthcare prices were unchanged over the past half a year.

Typically, the government adjusts healthcare costs every six months, which means an upward adjustment to healthcare costs could happen in July or August. In addition, given how well inflation has been contained, there could be more room for the government to continue healthcare reforms.

Overall, Vietnam’s inflation has remained subdued with inflation growing at 2.6 per cent year-on-year on average in the first six-month period.

Although higher global food prices stemming from El Nino and recent retail electricity price hikes could pose upside risks, they are unlikely to pose imminent threats to the State Bank of Vietnam’s (SBV ) inflation target of below four per cent.

Given benign inflationary pressures and solid economic growth, HSBC predicted the SBV will keep monetary policy on hold this year.

HSBC also noted during what has been a bumpy 2019, Vietnam has managed to weather risks to grow relatively well.

At first glance, some headline numbers may not look rosy compared to previous quarters, HSBC said, citing Vietnam’s gross domestic product (GDP) in the second quarter gradually slowed to 6.6 per cent yearon-year due to slower growth in the manufacturing sector of 9.4 per cent.

Manufacturing’s contribution to GDP fell below two percentage points for the first time in two years, dragging down economic growth slightly.

However, they said, Vietnam’s performance is not as bad as it looks in the broader context of a cooling tech cycle and subdued global demand.

Exports rebounded strongly to 9.5 per cent year-on-year from the 13-quarter low of 5.1 per cent in the first quarter.

The Purchasing Manufacturing Index accelerated to 52.5 in June, ending the second quarter with a stronger reading than the first quarter.

But it’s not only manufacturing. Services, another pillar of growth, continued to expand steadily at 6.9 per cent year-on-year in the second quarter, thanks in part to flourishing tourism.

Unsurprisingly tourism-related industries, such as retail sales, transportation and accommodation services, continued to grow steadily, contributing to a more diversified growth outlook.

Vietnam welcomed a record high 15 million tourists last year, and by mid-2019, tourist arrivals are growing 7.5 per cent year-on-year.

The trend is likely to continue in the second half of this year, especially as the northern hemisphere enters winter season.