VERP research: Growth up, inflation too

According to Nguyen Duc Thanh, VEPR director, quarterly growth for the third quarter gross domestic production was 7.46 percent, an improvement of 0.27 percentage points from the second quarter, with a forecast of 7.12 percent for the fourth quarter, bringing the expected annual growth rate to 6.64 percent.

In particular, agricultural and service sectors have improved their performance, with construction and manufacturing industries growing 12.77 percent quarter on quarter. Other industrial productivity indicators were also positive.

In the fourth quarter, consumer demand and investment demand is expected to increase sharply as the pace of construction investment disbursement is accelerated. At the same time, exports will likely continue to rise sharply due to favourable developments in the world economy, as well as global trade growth.

Third quarter consumer price index (CPI) growth has increased from 2.52 percent in July to 3.4 percent in September. This can be attributed to 20 provinces increasing their overall health care service fees for patients without insurance by 58.08 percent in September.

Furthermore, 46 provinces and cities increased tuition fees in August and September, which in turn pushed the education sector’s price index up 7.92 percent in September compared to the same period in 2016.

The transportation price index has also increased after the adjustment of gasoline prices in the third quarter, with growth rates of 5.7 percent and 6.7 percent in August and September, respectively.

With food price recovery, credit growth and disbursement pressure, as well as upward adjustment in electricity and public service prices, the fourth quarter inflation rate will mostly likely increase to 4.16 percent, exceeding the annual target rate of 4 percent.

VEPR research also indicates that a Prime Ministerial decision allowing Electricity of Vietnam (EVN) to adjust the average electricity retail price from 3 to 5 percent based on objective price fluctuations may also create further inflationary pressure.

Another indicator also reinforces the view that inflation will increase, said Thanh, mentioning that while the targeted annual credit growth is 21 percent to ensure an annual overall growth rate of 6.7 percent, up until the third quarter, actual credit growth was around 10 percent.

Thus, the credit growth rate will need to increase 10 percent in the fourth quarter to meet the Government’s planned growth rate. This is equivalent to an infusion of around 200 trillion VND (8.88 billion USD) into the economy, which poses a threat not only to inflation but also hints at non-performing loans in the future.

On the other hand, core inflation has dropped slightly against the second quarter to 1.32 percent, widening the gap to full inflation and reflecting the State Bank of Vietnam’s policy of prudent money supply.