Containers are loaded at a port. Viet Nam's domestic demand is on the path to recovery, with the outlook for import growth staying robust. — Photo baohaiquan.vn

HA NOI (Biz Hub) — Viet Nam's domestic demand is still on the path to recovery, ANZ Bank said in its Macro Strategy Weekly report dated August 26.

Despite recent weakness in agricultural output, growth in the country's manufacturing sector will keep income rising. Low inflation rates and improvement in credit growth will keep domestic activity on a resilient path.

Accompanying the improvements in domestic fundamentals, the country continues to transform its export product suite. Bucking the regional contraction, exports posted a 5.3 per cent year-to-date year-on-year rise.

The outlook for import growth is likewise robust. Capital imports surged in the first half of 2015 following strongly implemented foreign direct investment in the electronics sector.

As high base effects fade through 2016, import growth is likely to turn positive again in 2017 as localisation rates in Viet Nam are still very low. This should imply a stable trade balance in the medium term.

The report said with the exception of Viet Nam, the contraction in Asia's exports is now on its second year – reflecting the weakness in final demand. Yet, the evolution of the trade balance also reflects the relative strength of domestic activity.

Countries with relatively soft domestic demand saw improvements in their trade balance, with the contraction in import outstripping the contraction in exports.

Meanwhile, countries with resilient domestic demand posted deterioration in trade balances as imports continued to rise despite soft exports.

While most countries in the region have seen domestic demand stutter in the last 18 months, fiscal support will likely bear fruit soon. This should allow import growth to gain traction through 2017.

If the export outlook remains weak, the trade balance could deteriorate. — VNS