Vietnam Trims Growth Forecast

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HANOI—Vietnam trimmed its economic growth forecast and sharply raised inflation expectations, as the government battles to restore economic stability.

The country is now targeting gross domestic product growth of 6.5% this year, from an initial target range of 7%-7.5%, Minister of Planning and Investment Vo Hong Phuc said Tuesday at an annual meeting of the Asian Development Bank.

He said the government also will attempt to maintain inflation at last year’s level, 11.75%. The country had earlier set a target of capping 2011 inflation at 7%.

“Vietnam will now focus on taming inflation this year,” Mr. Phuc said, adding that consumer prices have already risen by 9.64% as of the end of April, compared with the end of 2010. “The task is very challenging in the remaining months of the year.”

State Bank of Vietnam Gov. Nguyen Van Giau said the initial targets were made “before recent unexpected events in the world, including the earthquake in Japan and political events in Libya.”

The decision to revise the forecasts follows a slew of poor economic data from Vietnam, where the government is facing a tough task of revitalizing what was once one of the most promising emerging economies.

HSBC economist Sherman Chan said the downward GDP revision brings it closer to the house’s projection of 6.8% expansion this year. The bank, however, tips inflation to average 14.3% this year. “The government’s new target, despite a sharp upward adjustment, still seems very optimistic in light of the surge in global food and oil prices. I won’t be surprised if there’s another upward revision later on,” she said.

Price pressures have been building rapidly, with inflation rising 17.51% in April from a year earlier, the fastest pace since December 2009. In monthly terms, inflation accelerated to 3.32% in April, the fastest pace since May 2008.

Slackening that rise in costs won’t be easy after the government raised electricity prices by more than 15% in March and lifted the cost of fuel by more than 20% in the first quarter. The administration has also said it will allow state-owned Electricity of Vietnam to raise prices further later in the year.

However, the government has been taking some steps to help stabilize the economy by tossing aside its longstanding policy of focusing on growth. It has vowed to tackle inflation by tightening monetary and fiscal policy and last week reportedly proposed cutting public investment by 96.89 trillion Vietnamese dong ($4.69 billion) this year—equivalent to 10% of the country’s planned 2011 investment and far more than the 50-trillion-dong reduction the government approved last month. Vietnam’s central bank also last Friday raised two key policy rates on dong-denominated loans by one percentage point, which could potentially crimp credit growth.

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