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Vietnam Second-Quarter GDP Growth Quickens as Dong Devalued

Anti-China Protest In May
Protesters wave flags and hold placards in nti-China protests on a street outside a factory building in Binh Duong, on May 14, 2014. Violent protests broke out in May following China’s placement of an oil rig in disputed waters. Source: VNExpress/AFP/Getty Images

June 27 (Bloomberg) -- Vietnam’s economic growth quickened in the second quarter as the outlook for exports improved after the dong was devalued for the first time in a year.

Gross domestic product rose 5.25 percent in the second quarter from a year earlier, according to data released by the General Statistics Office in Hanoi today. That compares with a revised 5.09 percent pace in the three months through March. The economy expanded 5.18 percent in the first half from a year earlier, compared with a median estimate of 5.2 percent in a Bloomberg News survey of 8 economists.

The State Bank of Vietnam last week devalued the dong to help spur exports after anti-China protests in May halted production at foreign-owned factories and caused Chinese workers to flee. The government is trying to bolster an economy that the World Bank estimates will expand 5.4 percent this year, below a government target of 5.8 percent.

“Vietnam’s high gearing to the external sector looks to be paying off,” said Philip McNicholas, a senior economist at BNP Paribas SA in Hong Kong. Today’s data “puts it on course for a strong performance over the rest of the year,” he said, adding that the dong’s devaluation should help exporters regain competitiveness.

The dong was little changed at 21,335 against the U.S. dollar as of 10.29 a.m. local time. The benchmark VN Index gained 0.4 percent.

Spur Lending

Violent protests broke out in May following China’s placement of an oil rig in disputed waters. Vietnam is studying the impact of the tensions with its largest trading partner, and will closely monitor sectors that may be affected, including trade, infrastructure and tourism and take “suitable actions,” Deputy Prime Minister Nguyen Xuan Phuc said June 12.

The central bank devalued the dong on June 18 by weakening its reference rate for the currency by 1 percent to 21,246 per dollar. The change allows the dong to fluctuate as much as 1 percent on either side of the central bank’s fixing. The currency has slipped more than 1 percent this year.

Vietnam has also stepped up efforts to overhaul debt-laden banks and spur lending to businesses. Prime Minister Nguyen Tan Dung has repeatedly called on the central bank to lower lending rates and help companies, as the highest level of bad debt among Southeast Asia’s biggest economies curbed credit growth.

Bank lending rose 1.31 percent as of May 23 from year-end 2013, according to the central bank. That compares with a full-year target of 12 percent to 14 percent. Disbursed foreign direct investment in the first half was estimated at $5.75 billion, an increase of 0.9 percent from the year before, the Ministry of Planning and Investment said this week.

‘Robust’ Potential

Inflation quickened to 4.98 percent in June from a year earlier. Price gains for the full year may average about 5 percent, Nguyen Duc Thang, head of consumer price statistics, said at a briefing today. Industrial production rose 6.1 percent in June from a year earlier, data showed.

Vietnam’s growth potential is “robust, given an export manufacturing sector that is well-diversified and increasingly oriented toward higher value-added goods,” Standard & Poor’s said yesterday, while affirming its BB- rating on the nation with a stable outlook.

Exports rose 14.9 percent in the first six months from the same period last year and imports climbed 11 percent, data today showed. The trade surplus for the first half of the year was $1.3 billion.

To contact the reporter on this story: Nguyen Dieu Tu Uyen in Hanoi at uyen1@bloomberg.net

To contact the editors responsible for this story: Stephanie Phang at sphang@bloomberg.net Rina Chandran, Malcolm Scott

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