Vietnam’s fourth-quarter growth exceeded market expectations and the country’s full-year expansion was “far more resilient” than the rest of Asia with the exception of China, Citigroup Inc. said.
The economy expanded 6.9 percent on-year in the fourth quarter, up from a revised 6.04 percent in the third quarter, and grew 5.32 percent for the full year, according to figures released last week by the General Statistics Office in Hanoi. This marked a rebound after first-quarter expansion of 3.14 percent, the slowest on record.
Vietnam’s central bank will need to increase its benchmark interest rate again because of the strong fourth-quarter growth and accelerating inflation, wrote Johanna Chua, the Hong Kong- based head of Asian economic research at Citigroup. The central bank rate was raised to 8 percent from 7 percent as of Dec. 1.
Fourth-quarter economic growth was “much stronger than expected,” Chua wrote, in a note dated yesterday that said Citigroup expected full-year growth of 4.7 percent, without giving its forecast for the past three months. Vietnam’s construction industry in particular was helped by “strong monetary and fiscal stimulus,” she said in the note.
The sub-category measuring construction grew 11.4 percent on-year in 2009, according to General Statistics Office figures. The industry’s “booming” growth in 2009 was driven by higher lending, a drop in construction costs and government infrastructure projects, according to a research note dated Dec. 31 from Barclays Plc.
Rising Inflation
Credit growth accelerated to about 38 percent last year from 25 percent in 2008. Shipments of electronic products and garments are rebounding, and overall Vietnamese exports should benefit this year from a weaker exchange rate, Chua wrote.
The exchange rate of the Vietnamese dong against the dollar fell to 18,479 by the end of last year from 17,483 at the end of 2008. The currency’s weakness has probably already fed into inflation, Chua wrote. Prices rose 6.52 percent year-on-year in December, the fourth straight month in which the General Statistics Office has reported a higher figure.
“Strong fourth-quarter 2009 growth and rising inflation warrant more tightening,” Chua wrote. “Inflation risks are rising.”
In addition to raising its benchmark rate to as much as 9 percent, Vietnam’s central bank may also abolish or revise a regulation that places a ceiling on how much interest lenders can charge borrowers, she wrote.
Such a move would “further tighten monetary conditions,” she said in her note.
