Standard Chartered raises Vietnam GDP growth forecast to 7.5%

Standard Chartered Bank has revised up its Vietnam GDP growth forecast for this year to 7.5% from the previous 6.7%, and to 7.2% for next year from 7%, following the country's robust Q3 growth of 13.7% year-on-year.

The global bank, in a report Wednesday, anticipates the country’s Q4 growth at 4%.

Lowering its Vietnam inflation forecast for this year to 3.3% from 4.2%, the bank expects an acceleration in Q4 to 5% from 3.3% in Q3. Inflation has been largely under control; price pressures may increase in the rest of 2022 and in 2023. In addition to supply-side factors, demand-side factors might kick in more strongly, the report notes.

“We maintain our average 2023 inflation forecast at 5.5%, expecting it to rise throughout next year, reaching around 6% late next year. We see inflation as a threat to Vietnam’s continued recovery,” Tim Leelahaphan, economist for Thailand and Vietnam, Standard Chartered Bank, says in the report.

Standard Chartered economists expect the State Bank of Vietnam (SBV) to continue tightening monetary policy and forecast a 50 basic-point hike in the refinancing rate each in Q4-2022 and Q1-2023, taking the rate to 6%, following a 100 basic-point hike to 5% effective on September 23.

Leelahaphan says, “We see a risk of SBV raising rates more than we expect if inflation accelerates and the Vietnamese dong weakening more than we forecast as the U.S. Federal Reserve maintains a relatively hawkish stance. We expect SBV to stay vigilant against inflation and financial instability besides helping businesses recover from the Covid impact.”

According to the UK-based lender, the Vietnamese dong is likely to face several headwinds in the short term like the gaining U.S. dollar, higher commodity prices, and slowing external demand. The Vietnamese dong continues to significantly outperform its peers across Asia, despite recent depreciation.

Standard Chartered Bank expects the pace of VND depreciation to slow in the coming months. The USD-VND forex’s correlation with USD-CNY remains extremely strong. As such, a peak in USD-CNY will likely coincide with the peak in the USD-VND forex.

The bank forecasts USD-VND at 24,200 by the end of 2022, and at 24,000 for end-Q1/2023, then declining towards 23,400 by end-2023.

Late last month, the World Bank revised Vietnam’s 2022 GDP forecast from 5.8% in early June to 7.2% (like Standard Chartered’s Wednesday forecast), and predicted 6.7% for next year, the highest in Southeast Asia.

The ASEAN+3 Macroeconomic Research Office (AMRO) on Wednesday put its Vietnam GDP growth prediction at 7% for this year on the back of strong external demand, a recovery in domestic demand, and strong foreign direct investment inflows.