Vietnam likely to outperform despite Brexit; farm output likely to weaken

Vietnam is expected to outperform in the region despite result of a Brexit that is expected to stretch the ongoing instability in the global economy. Vietnam remains the Asian economy that continues to withstand the multitude of global challenges that have culminated in Asia’s “trade recession” much better than its relative peers.

The large cumulative FDI inflows, the ongoing upskilling and the diversification of the export base, along with a gradual depreciation of the Dong are adding to the external resilience of Vietnam, ANZ reported.

Agriculture in Vietnam is emerging both as a drag on growth as well as a boost to inflation. Agricultural production is expected to have its weakest output growth since the gross domestic product series was rebased in 2012. Following slow and steady rise in food prices, inflation is expected to maintain its upward path averaging 2.4 percent y/y in 2016 and rising further to 3.3 percent in 2017, the report added.

"Nevertheless, we are paring back our forecast to 6.4 percent in 2016 (from 6.9 percent) due to softness in agricultural output. We maintain our 2017 forecast at 6.5 percent," ANZ commented in its report.

Furthermore, core inflation is expected to remain low with the output gap still in the negative zone. Export growth should continue to benefit from the diversity in export mix. Further, ANZ believes that stabilization in trade will likely see a return of a narrow trade surplus in 2016.

Meanwhile, greater flexibility in the exchange range fixing regime, coupled with a stable trade balance, is expected to allow the central bank to continue shoring up its official reserves.