Standard Chartered Bank in a just-released global economic report says Vietnam's GDP growth accelerates to 9.1% year on year in the third quarter of 2007.

Tai Hui, regional head of economic research for South East Asia of the bank, who conducted the research, said the local economy expanded 8.3% in the first nine months of the year, but 9.1% in the quarter, up from 7.9% in the second quarter.

The acceleration in growth, said the economist, is unsurprising as the Vietnamese Government continues to pursue pro-growth policy in order to achieve its 8.5% growth target for this year.

Recent comments from authorities suggest this drive could become even more aggressive next year as policymakers hope to achieve a GDP per capita of US$1,000 by 2008, ahead of its original target of 2010.

Another momentum for growth is foreign direct investment (FDI). The Government figures stated that the country has attracted US$9.6bil of investment in the first nine months of 2007, a year on year growth of 38%.

This is likely to surpass Standard Chartered's forecast of US$10bil for the year and may hit US$13bil.

Despite the high growth, Tai Hui has warned of an inflation risk as a result of higher food and energy prices as well as a weaker local currency.

"We remain cautious over this 'super growth' approach, particularly with inflation running high at 8.8% year on year in September.

Although we believe it is reasonable to expect the Vietnamese economy to expand by 6-8% in the medium term, allowing inflation to stray is a risky strategy that could undermine the long-term balance of the economy", Tai Hui said in the research.

The current high level of energy prices is not sustainable and the near term pressure on inflation should not be overlooked. Besides, recent weakness of the green-back implies that the dong, which moves closely with the dollar, has its effective exchange rate depreciating also. This again could add to Vietnam's inflation risk.

Meanwhile, the research showed retail sales continue with its strong momentum. Total retail sales grew by an average rate of 23.6% year on year during June-August 2007. While this is partially a result of higher inflation, the underlying strength of demand should not be underestimated.

As a result, Standard Chartered raised the inflation forecasts for 2007 and 2008 to reflect the upside risk to inflation. "We now expect inflation to average 8.0% in 2007 and 8.5% in 2008, compared with our previous forecast of 7.6% and 8.2% respectively", said Tai Hui.

Source: SGT.