Domestic demand returns in Vietnam, says ANZ

Support from external demand continues to be robust as the barbell effect of low oil prices remains intact. Various indicators are pointing to a recovery of domestic demand.

The expansion in industrial production is fastest since the index was rebased in 2012. The production of construction-related materials is picking up, pointing to an improvement in the construction and real estate sectors.

Average real growth of retail sales in the first two months of the year is the fastest rise over the same period in five years. Sales of all types of motor vehicles are growing. Sales of passenger cars have been rising, while growth in sales of commercial vehicles is in line with the strength in manufacturing.

The steeper-than-expected pull back in inflation leads us to downwardly revise our inflation forecasts to 2.6% in 2015 and 3.8% in 2016. (previously at 3.0% and 4.5% respectively). With a subdued inflation outlook, we see sufficient room for the central bank to further loosen monetary conditions in 2015 as growth is still below potential.

Industrial production (IP) posted the fastest annual gains since 2012, when the series was re-based. Averaging the seasonal effects of the lunar New Year (Tet) holidays, we estimate IP growth of 14.2% over the first two months of the year, up from 5.6% over the same period in 2014.

Manufacturing activity, which we see accounting for at least 70% of total industrial production, has been gaining momentum since October 2014.

Production of electronic components reported a robust average growth of 16.6% over the period, on top of almost 40% growth over the same period last year.

This is in line with another expected strong growth in exports in 2015 on the back of continued foreign direct investment (FDI) from big international electronics players.