Vietnam Economy Boosted by Lower Energy Costs, Latest Data Show

Vietnam Economy Boosted by Lower Energy Costs, Latest Data Show

Nguyen Dieu Tu Uyen
September 24, 2015 — 10:45 PM PDT

• Pledged foreign investment has increased 53% this year
  
• Full impact of yuan and dong devaluations may be seen later
  

Vietnam’s economy is benefiting from cheap oil as disappearing inflation boosts domestic demand, early indicators of growth this quarter show. The impact of a weakened currency following China’s yuan devaluation is less clear.
Economic data this week show how lower energy costs are giving consumers and businesses breathing room:

• Inflation dwindled to zero this month for the first-time ever, Nguyen Bich Lam, head of the General Statistics Office, said Thursday.Price gains have averaged less than 1 percent this year, compared with a five-year average of more than 9 percent through 2014.
  
• The number of new businesses rose 29 percent to 68,347 in Jan.-Sept.
  
• The ADB raised its 2015 growth forecast for Vietnam to 6.5 percent and 6.6 percent for 2016, saying private consumption is benefiting from low inflation, improved consumer confidence and growth of non-farm wage employment.  
  
• ANZ-Roy Morgan Vietnam Consumer Confidence Index advanced to 135.3 this month.
  
  
  

To be sure, the outlook for inflation is complicated by a weakening currency, which could push up import costs. While exports rose 9.6 percent in the nine months through September from a year earlier, imports surged 15.9 percent, the planning and investment ministry said Friday.

The central bank weakened the dong’s reference rate in August for the third time this year and widened the currency’s trading band after China devalued the yuan, as the government sought to safeguard exports and boost 2015 economic growth to a four-year high of 6.2 percent.

Prolonged weakness in price gains may also be a danger sign for consumption.
The weak inflation in September was linked to lower electricity costs and two gasoline price cuts in August and September, which led to lower transportation prices, according to the GSO. 

“The question now is whether a deflationary spiral actually exists,” where lower price levels lead to lower production, wages and consumption, Saigon Securities Joint-Stock Co., Vietnam’s largest brokerage, said in a note Thursday. High retail sales growth of about 10 percent suggest that there’s nothing wrong with aggregate demand, it said.

The good news is that overseas demand for Vietnam’s goods and interest in the country as an investment destination is holding up, even amid weakening demand from China. Pledged foreign investment rose 53 percent in the nine months through September from a year earlier, the planning ministry said Friday.

Low inflation has an added benefit to the economy. Vietnam’s central bank has room for monetary easing and to maintain an accommodative monetary stance, the ADB said this week. The country’s growth is expected to accelerate through the second half, underpinned by rising private consumption, export-oriented manufacturing, and FDI, it said.


http://www.bloomberg.com/news/articles/2015-09-25/cheap-oil-is-giving-vietnam-s-economy-a-boost