Boston, MA -- (SBWIRE) -- 07/12/2013 -- Vietnam's real GDP growth came in relatively weak at 4.9% yearon- year (y-o-y) in Q113, missing Bloomberg consensus of 5.2% by a significant margin. However, the HSBC purchasing managers' index, which posted a 23-month high of 50.8 in March, suggests to us that the economic recovery remains on track.

The State Bank of Vietnam (SBV) cut its refinancing rate by 100 basis points (bps) from 8.00% to 7.00% on May 13. Easing commodity prices (especially within the grains complex) have played a major role in anchoring Vietnam's headline consumer price inflation (CPI) within the low 6.0-7.0% range in recent months, and we expect this trend to persist as we head into H213. Accordingly, we expect the SBV to keep its policy rate on hold through 2014.

FDI inflows into Vietnam surged by a whopping 17% y-o-y to US$8.2bn in the first four months of this year. We expect increasing FDI inflows into Vietnam to boost gross fixed capital formation growth (GFCF), which we forecast to come in relatively strong at 5.1% and 6.0% in 2013 and 2014 respectively.

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Major Forecast Changes

We have revised down our real GDP growth forecast from 7.0% to 6.3% for 2013.

We have also revised our end-2013 policy rate forecast to 7.00% to reflect the latest rate cut by the SBV.

Key Risks To Outlook

Downside Growth Risks From Rising Commodity Prices: Should commodity prices witness a strong rebound in 2013, we could see the central bank adopting a more hawkish stance on monetary policy. The risk of having to hike interest rates aggressively would present significant downside risks to economic growth.

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