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ANZ lowers inflation forecast to 6%
12/05/2014

 

HCMC – ANZ Bank in a Vietnam macroeconomic update released on May 8 revised down the nation’s inflation forecast to 6% this year due to sluggish domestic demand.

 

The bank in the report said inflation continues to undershoot market expectations. April’s headline inflation was soft, at 4.45% year-on-year, with a sequential marginal gain of 0.08% month-on-month.

 

“Stripping out the food and transport components, our estimate for the core inflation declined to its lowest since December 2009. Despite the higher number of holidays in April, retail sales failed to prop up demand, thus capping consumer price gains,” it said.

Retail sales since early this year expanded 10.56% against 2013, lower than the 11.5% gain over the same period last year. The expected support from public investment in infrastructure spending has so far failed to offset weak consumer sentiment.

“We once again downwardly revise our inflation forecast and expect 2014’s inflation to hover around 6% year-on-year and 2015’s inflation at 6.8%, previously from a range of 7-7.5%,” ANZ said.

 

According to the Department of Business Registration Management, 21,500 enterprises were dissolved or temporary suspended in the first trimester of the year, rising 9.4% over the same period last year.

Banks remain hesitant to extend credit as most borrowers fail to present feasible plans to clear inventory. The medical and social assistance sectors have been worst hit, followed by the information and communication technology sector.

However, the bank said that domestic liquidity is likely to remain flushed as the external sector picks up the slack in the economy. The stream of foreign direct investment (FDI) indicates a healthy pipeline of projects.

 

As of April 20, there had been 390 new projects with new registered capital of US$3.22 billion. Some 140 existing projects received additional funding of US$1.62 billion.

In April, trade posted a deficit of US$400 million, maintaining a narrow year-to-date surplus of US$683 million. FDI-related trade remained in surplus while locally-owned trade stayed in negative territory.

ANZ expects the weak growth in domestic demand to remain as banks slowly grapple with bad debts on their balance sheets. In the meantime, the robust backdrop provided by the external sector will underpin overall growth prospects.

This would allow the central bank to shore up foreign reserves in the next three to four years, ahead of the time when domestic demand is likely to normalize, taking the current account back into the deficit zone, the report said.

 

The bank also maintains its gross domestic growth (GDP) growth forecast of 5.6% and 5.8% in 2014 and 2015 respectively on the back of weak but stable improvements. The rise in public investment construction has so far failed to offset the weak consumer and business sentiment.

Source: Thesaigontimes.vn

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Tags: inflation, liquidity, macroeconomic, tre,