Vietnam growth holds near 6 pct as higher rates counter exports

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Vietnam's growth held near 6 percent this quarter, reducing the pressure for further monetary tightening after higher interest rates limited the boost to the economy from exports and domestic consumption.

Gross domestic product increased 6.1 percent in the fourth quarter from a year earlier, the General Statistics Office said in an e-mailed release on December 29. The preliminary estimate compares with a revised 6.07 percent growth rate for the three months through September. For the full year, Vietnam's economy expanded 5.89 percent, down from the 6.78 percent rate for 2010.

Vietnam's government has struggled this year to steady its economy, devaluing the dong as the currency weakened on the black market and raising borrowing costs to contain the fastest inflation in Asia.

While Prime Minister Nguyen Tan Dung said this month his administration has price gains under control, the International Monetary Fund and the World Bank have said that easing monetary policy too soon would risk economic instability.

"Normally the fourth-quarter figures in Vietnam are sequentially up by even more," said Ashok Bhundia, a Hong Kong- based fixed-income strategist at Bank of America Merrill Lynch. "They've achieved a moderate economic slowdown in 2011 by tightening policy and they should hold where they are for now."

The Ho Chi Minh City Stock Exchange's VN Index was little changed at 350.51 on December 29. The Vietnamese dong was little changed at 21,038 per dollar.

"˜Difficult' year

Inflation and high interest rates have hindered businesses, Do Thuc, general director of the statistics office, told reporters in Hanoi today, saying the government's measures to fight inflation have brought "pretty positive economic results this year" while 2012 will be "very difficult."

"We expected fourth-quarter growth to rebound as the trade deficit narrowed," Dariusz Kowalczyk, a Hong-Kong based senior strategist at Credit Agricole CIB, said before the data were released. "We see a slowdown in 2012 due to the deteriorating external environment and because insufficient depreciation of the dong will undermine exports."

Vietnam's exports, which include coffee, crude oil and seafood, rose 33.3 percent to $96.257 billion this year, the General Statistics Office said on December 28. The trade gap narrowed to $9.5 billion from $12.6 billion in 2010.

Income gains

Economic growth averaging about 7 percent over the past decade has helped Vietnam reach what the World Bank calls lower middle-income status, with per-capita income having increased more than ten-fold since the ruling Communist Party started market-oriented reforms in 1986.

Fourth-quarter growth is "traditionally stronger" than the rest of the year, with both production and consumption increasing in part because of the Tet lunar new year holiday, said Alan Pham, the Ho Chi Minh City-based chief economist at VinaCapital Group. The Tet holiday begins in January next year.

Vietnamese "save up all year for Tet, or they dip into savings to keep spending up and then replenish savings later when their income improves," Pham said. "On the production side, many companies grit their teeth to borrow in the fourth quarter, because Tet is when they make 20 to 30 percent of their full-year profit."

Lending rates

Still, Vietnamese companies have struggled this year to cope with commercial lending rates that have reached as high as 27 percent.

FPT Corp., the biggest publicly traded telecommunications and software company in the country, said this month slower growth will hurt profit this year. HAGL Joint-Stock Co., the second-biggest publicly traded property developer, reported a slide in third-quarter profit as the company battles what Standard & Poor's described this month as high inflation and interest rates that are hurting Vietnam's property market.

The central bank's refinancing rate is 15 percent, up from 9 percent at the beginning of the year, as officials tried to fight an inflation rate that reached 23 percent in August. Soaring prices contributed to a 28 percent drop this year in the benchmark VN Index of stocks.

The rate increases and stock-market slump have put pressure on the country's banking industry, which Capital Economics Ltd. described this month as undercapitalized and vulnerable.

Industry and construction, which accounted for 40 percent of the economy, expanded 5.53 percent in 2011, the statistics office said today. Services, which made up 38 percent of GDP, grew 6.99 percent. Agriculture, forestry and fisheries, which were 22 percent of GDP, gained 4 percent.

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