Economic growth accelerates as domestic demand gains

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Vietnam's economic growth accelerated in the second quarter as domestic demand grew.

Gross domestic product climbed 5.67 percent from a year earlier, according to a preliminary estimate released by the General Statistics Office in Hanoi Wednesday.

That compares with a previously reported 5.43 percent for the first three months. The economy grew 5.57 percent in the six months through June, from a revised 6.18 percent in the first half of 2010.

The second-quarter pace of expansion indicates that "policymakers must step up their efforts and scale growth back further in order to ensure price stability," said Vishnu Varathan, a Singapore-based economist at the UK's Capital Economics. "While there has been some progress in slowing growth, more needs to be done."

"It's remarkable how rapid growth still is, considering the monetary policy tightening," Jonathan Pincus, a Ho Chi Minh City-based economist at the Harvard Kennedy School's Vietnam program, said before Wednesday's report. "Investment has probably slowed but the difference is being made up in private consumption."

Authorities' priority

The government has scaled back its growth forecast for 2011 to 6 percent from an original prediction of 7 to 7.5 percent. That would compare with 6.8 percent last year.

"In contrast to the emphasis on growth in the past few years, the authorities' priority is now shifting to restoring macroeconomic stability," the International Monetary Fund said on June 23, citing an increase in the Vietnamese central bank's refinancing rate to the current 14 percent from 9 percent at the beginning of the year.

In spite of the higher borrowing costs, Vietnam's "resilient" growth rate may accelerate further through the year, said Pincus of the Harvard Kennedy School.

"You have this regular recurring pattern in Vietnam of growth accelerating throughout the year," he said. "You have a two-week period around Tet in the first quarter where nothing happens, and the public investment cycle tends to pick up toward the end of the year."

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