Vietnam's economic growth moderates amid inflation battle: ADB

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Vietnam's growth is expected to slow to 6.1 percent this year as authorities tighten monetary policies and cut government expenditures to bring inflation under control, the Asian Development Bank said Thursday.

The economy expanded 5.7 percent in the second quarter of 2011, compared to 5.4 percent in the first quarter, supported by increased industrial and construction output. However, growth has moderated from last year's 6.8 percent as monetary and fiscal policies were tightened to cool the economy, according to the July edition of ADB's Asia Economic Monitor report.

The Manila-based bank noted that while headline inflation in the region ranges from about 3 percent to 6 percent on average, Vietnam is one of the "significant exceptions" with inflation reaching 20 percent by the end of June.

ADB said Vietnam's fiscal deficit of 8 percent of GDP was the highest in the region last year, but the government is planning to reduce it to 5.4 percent in 2011 by cutting expenditures.

Vietnam's low foreign currency reserves is also causing some concern, the bank said. Most regional economies retain ample foreign reserves to cover several months of imports, but Vietnam's reserves can only cover 1.6 months of imports.

After a strong rebound in 2010, economic growth in emerging East Asia will moderate this year, according to the report. It forecasts aggregate GDP growth for emerging East Asia economies at 7.9 percent in 2011 and 7.7 percent in 2012. Last year the growth reached 9.3 percent.

The bank, however, cautioned that there is a risk of rising inflation leading to wage-price spirals that could derail the region's growth.

"Growth is easing in most of emerging East Asia as authorities wind down fiscal stimulus measures and tighten monetary policies to counter rising inflation," said Iwan Azis, head of ADB's Office of Regional Economic Integration that prepared the report. "This is actually a good thing so stronger economies like the People's Republic of China don't overheat."

The Asia Economic Monitor is a semiannual report, covering the economies of the 10 members of the Association of Southeast Asian Nations and other markets including China, Hong Kong and Korea.

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