Vietnamese economy may expand 7.2 pct, exceeding target: HSBC

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Vietnam's economy may expand 7.2 percent this year, the fastest pace since 2007 and more than the government's target, according to HSBC Holdings Plc.

Gross domestic product in the Southeast Asian nation gained 5.8 percent in the first quarter. The government is targeting growth of 6.5 percent in 2010, which compares with a decade-low 5.3 percent in 2009.

Vietnam's first-quarter growth rate has been "significantly weaker" than other quarters over the past decade, with the historical tendency for the economy's pace of expansion to accelerate through the year, Wellian Wiranto, a Singapore-based economist at HSBC, said in a research note received Monday.

"Growth is most likely to head up for the remainder of the year," Wiranto wrote. "The regional trade recovery should bode well for the strength of Vietnam's industry sector."

Industry and construction accounted for 43 percent of Vietnam's economy in the first quarter, while services made up 42 percent. Retail sales have been growing at an "unceasingly strong" pace, Wiranto wrote.

"With wage increases scheduled for government employees as well as those in private sectors such as textile manufacturing, consumption should stay supported," he wrote.

In addition to exceeding the government's target, a 7.2 percent pace of growth would also be faster than the 6 percent forecast from the International Monetary Fund and the 6.5 percent expected by the World Bank.

Navigation skills

"Vietnam navigated the global financial crisis better than could have been anticipated," the World Bank said last month.

The growth pace may be driving Vietnamese trade deficits, with imports of consumption goods "ballooning" in recent months, wrote Wiranto, citing an increase in electronic-product imports. Vietnam's monthly trade deficit widened 8 percent in April to US$1.25 billion, based on preliminary General Statistics Office figures.

The "spillover impact" of government stimulus in 2009 may also be contributing to the trade deficit, even as the measures buoy economic growth, HSBC said.

"Vietnam has continued to experience obstinate trade deficits in recent months," Wiranto wrote. "Recent figures have yet to show a significant improvement."

The inflation rate which was 9.2 percent in April also "remains high," though abundant food supplies may curb price growth in coming months, he said.

"However, there are other items within the basket which are worth watching closely down the road," Wiranto wrote, citing construction-material prices that rose 17.3 percent last month from a year earlier.

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