ANZ Bank’s research team has predicted the dong currency will weaken 0.4 percent against the US dollar at the end of this year given global trade risks.
In a Greater Mekong Economic Outlook report, ANZ said fundamentals remain modestly supportive to the domestic currency. Gross domestic product (GDP) growth has been robust, with inflation contained, foreign direct investment (FDI) flows staying healthy, and the trade balance improving, underpinned by strong exports.
However, the strengthening of the greenback in recent months has made the dong weaker. Since early this year, the dong has declined 0.3 percent against the dollar.
“We see some risks going forward. Trade issues between the US and Asia (notably South Korea and, to a smaller extent, China) could impact Vietnam. Also, higher global oil prices could push up inflation in Vietnam,” the bank said in the report.
In addition, it appears that State Bank of Vietnam is guiding dollar price higher, especially since April, as seen in the daily dong-dollar fixing. This followed a period of broadly steady fixings since mid-2017.
“We expect the dollar price at VND22,780 at the end of 2018, a 0.4 percent depreciation in the dong for the year,” it said.
Besides, ANZ expects some pull-back in economic growth momentum as the growth may have peaked in the first quarter.
Growth was surprisingly higher than expected in the first quarter. In the past, growth tended to be lowest at the start of the year, followed by an acceleration in activity through the year.
With GDP growth of 7.4 percent year-on-year, the bank expected some pull-back in growth momentum towards a more sustainable rate of 6.8 percent for 2018, followed by 7 percent in 2019.
ANZ noted that inflation has been gradually picking up, at 3.9 percent year-on-year in May. Food prices turned a corner at the start of the year, implying that all major consumer price index (CPI) components are now contributing positively to headline inflation. Although transport costs have edged higher, they have not fully reflected the trajectory of global fuel prices. Meanwhile, health-related prices have only been adjusted 3.9 percent year-to-date, compared to an increase of 16.8 percent year-to-date over the same period last year.
If the adjustments are delayed further, there will be heightened risks of higher price increases down the road. In the past, when health prices were capped over a prolonged period, the subsequent changes tended to be dramatic.
“As such, we expect inflation to rise to 3.6 percent in 2018, still below the maximum threshold of 4 percent set by the government early this year. We then expect inflation to remain on an upward path, averaging 4.2 percent in 2019,” ANZ added.
Last, newly registered FDI has continued coming in, though at $4.7 billion as of May, below $5.6 billion over the same period last year.
After the US withdrew from the Trans-Pacific Partnership (TPP) trade agreement, the remaining members of the pact are now pursuing the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). With Vietnam expected to uphold its commitment to pursuing significant economic reforms, the prospects for more FDI are positive.
http://english.thesaigontimes.vn/60290/ANZ-Vietnam-dong-to-fall-further.html
