VINACHEM

Core inflation in 2016 will not be much higher than that of 2015, at about 3 percent, while the inflation rate will be a little bit lower than core inflation, about 2-3 percent. The exchange rate and interest rate would bear hard pressure.

The predicted figures have been found in the National Finance Supervision Council’s (NFSC) report on Vietnam’s economic prospects in 2016.

NFSC believes the inflation rate would not be high in 2016 because of the forecast that goods prices in the world will continue to decrease, which would help reduce domestic production costs.

However, the goods price decrease in 2016 is believed to be less sharp than in 2015, therefore, the gap between the inflation rate and core inflation would not be as big as in 2015.

Macroeconomic stability in the last three years (2013-2015) helped calm the public. The total demand in 2016 is expected to be higher than in 2015, which would be an important factor to affect inflation. However, the consumer price increases would not be big and within control, despite the minimum wage increase for civil servants in 2016.

If the inflation rate is 2-3 percent as predicted, the rate would be curbed lower than the targeted 5 percent set by the National Assembly.

Regarding the possible impact of the exchange rate adjustment on inflation, NFSC estimates that every one percent of the dong devaluation would make the inflation rate increase by 0.06-0.1 percent, which means the impact would be weaker than that in the high inflation period.

Trade deficit would be higher

NFSC sees favorable conditions for the payment balance in 2016, including the foreign direct investment (FDI) disbursement, which is expected to increase from $13.2 billion in 2015 to $13.5 billion in 2016.

Meanwhile, the foreign portfolio investment is believed to increase this year as foreign investors are encouraged by continued macroeconomic stability, even though the US FED’s decision on raising the prime interest rate recently is believed to affect capital flow to emerging economies.

The State Securities Commission (SSC) believes that the foreign investments on Vietnamese stocks would be increasing as a result of the new policy which allows foreign investors to hold up to 100 percent of stakes in Vietnamese businesses.

However, NFSC warned that the trade deficit is likely to be higher than in 2015 as a result of the higher input materials for domestic production once the national economy warms up. The $4 billion worth of trade deficit has been projected for 2016, higher than $3.2 billion in 2015.

The overseas remittance, which was worth $13 billion in 2015, is believed to rise to $14 billion this year.