HANOI (Reuters) – Vietnam’s economic growth accelerated in the second quarter on robust exports, government data showed on Saturday, but rising inflation remained a challenge for the Southeast Asian country.

Gross domestic product is estimated to have expanded to 6.93% in the second quarter from a year earlier, faster than a growth of 5.87% in the first quarter, the government’s General Statistics Office (GSO) said.

The economy expanded 6.42% in the first half of this year, the GSO added.

Vietnam, an important exporter of smartphones, electronics and garments, is seeking to shore up business activity after missing last year’s growth target because of weak global demand and power shortages.

“Vietnam’s socio-economic situation continues a positive trend, with each quarter being better than the previous one,” the GSO said in a statement.

“The country’s economy and society continue to face many difficulties and challenges, amid external risks and uncertainties … achieving the growth target of 6.0-6.5% in 2024 is a big challenge, requiring the joint efforts from all forces,” the GSO added.

Vietnam’s exports in the first half of this year rose 14.5% from a year earlier to $190 billion, while industrial production increased 10.9% from a year earlier, according to the GSO.

Earlier this week, Prime Minister Pham Minh Chinh said second-quarter GDP growth would exceed the first quarter’s pace, and said policy would continue to prioritise growth to meet this year’s growth target of 6.0%-6.5%.

Chinh said Vietnam would stick to its flexible monetary policy, with an aim of further cutting banks’ lending interest rates, reducing fees and boosting public investment.

INFLATION PRESSURE

The International Monetary Fund expects Vietnam’s economic growth to be close to 6% this year, supported by strong external demand, resilient foreign investment and accommodative policies, but has warned that downside risks are high.

The IMF said that if exchange rate pressures were to persist for longer it could lead to a larger pass-through to Vietnam’s domestic inflation, given easy monetary conditions.

Inflation pressures are building, with Vietnam’s consumer prices in June rising 4.32% from a year earlier, nearing the government’s inflation target ceiling of 4.5% for the year.

Average consumer prices in the first half of this year rose 4.08% from a year earlier, the GSO said.

The agency said it would closely monitor price movements and adjust prices of electricity, medical and education services in accordance with the real situation to minimise the impact on inflation.

A government decision to raise base salaries for state employees by 30% and pensions for retirees by 15% from July 1 is expected to add to inflation pressures.

(Reporting by Phuong Nguyen and Khanh Vu; Editing by William Mallard and Himani Sarkar)

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