Vietnam's economic growth quickened to 7.16 pct

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Vietnam's economic growth accelerated in the third quarter indicating full-year expansion may be the fastest since 2007, boosted by gains in industrial production.

Gross domestic product advanced 7.16 percent in July through September from a year earlier, according to figures released Tuesday by the General Statistics Office in Hanoi. The economy expanded at a 6.4 percent pace in the second quarter.

Industrial output, retail sales and credit growth have fueled Vietnam's recovery from last year's global recession. The economic expansion may exceed the government's 6.5 percent target for 2010, with the ruling Communist Party aiming for a 7.5 percent increase in GDP next year even as inflation quickens and the trade deficit widens.

The nation's third-quarter acceleration "contrasts with just about everywhere else" in Southeast Asia as the region is losing growth momentum, Kevin Grice, a London-based economist at Capital Economics Ltd., said in a Sept. 27 note. "On the output side, the upswing is being led by industry and construction."

The State Bank of Vietnam weakened the dong's reference exchange rate by 2 percent in August in a bid to curb the trade gap. The shortfall widened to $1.05 billion in September even after the devaluation, while inflation accelerated for the first time in six months to 8.92 percent, more than the government's 8 percent goal, recent reports showed.

The dong traded at 19,490 per dollar at 3 p.m. Tuesday in Hanoi from 19,099 before the devaluation was announced. The Ho Chi Minh City Stock Exchange's VN Index rose for a second day, closing up 1.1 percent to 455.13.

"˜Strong growth'

The economy grew 6.52 percent in the first nine months of 2010 compared with a year earlier, Tuesday's data showed. A full- year gain of more than 6.2 percent would be the fastest since 2007's 8.5 percent.

"The economy continues to show strong growth momentum," Johanna Chua, the Hong Kong-based head of Asian economic research at Citigroup Inc., said in a note this month. "Domestic demand remains resilient."

Vietnam's government has been urging banks to cut interest rates to bolster lending, which increased 16.3 percent in the first eight months of 2010 from the end of last year, according to central bank data.

"Bank credit growth has picked up again, after slowing sharply at the beginning of 2010, and is now expanding at a pace close to the 25 percent" government target for this year, Capital Economics said last week. The nation's GDP may increase 7 percent in 2011, the UK-based company said.

IMF analysis

While the government is concerned that high lending rates could affect industrial activity, "premature" monetary loosening may cause a "deterioration" in the trade deficit and boost inflation, the International Monetary Fund said in a report this month.

Such an outcome may lead to "sharp tightening measures at a later date with high costs to the economy," the IMF said.

Inflation has remained above the government's target for eight straight months, while the trade deficit reached $8.58 billion for January through September.

Industry and construction, which accounted for 41 percent of GDP, grew 7.29 percent in the first three quarters, the statistics office said today. Construction by itself expanded 10.25 percent during the nine-month period.

Services, which comprised 38 percent of the economy, grew 7.24 percent in the first nine months. Hotels and restaurants expanded 8.28 percent, as the number of foreign visitors to Vietnam advanced 34.2 percent from the same time a year earlier. Financial services gained 7.94 percent.

Agriculture, forestry and fisheries, which made up the remaining 21 percent of the economy, expanded 2.89 percent in the first three quarters. Vietnam is the world's second-biggest exporter of both rice and coffee.

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