Vietnam inflation to top 4%: Standard Chartered

Standard Chartered Bank expected Vietnam’s inflation this year at 4.2%, higher than the central bank’s prediction of less than 4%.

The higher rate was attributed to supply-side factors including rising commodity prices, especially given the current global geopolitical tension, the lender said in a note, adding that demand-push inflationary factors are likely to kick in over the medium run as the economy recovers.

Vietnam’s inflation may jump to 5.5% next year, much higher than the 2021 CPI of 1.84%, which was the lowest in six years, according to the bank.

ADB this month predicted Vietnam’s inflation to hit 3.8% this year and 4% next year, indicating the instability in global oil prices, while HSBC maintained its estimation at 3.7%.

HSBC believed that the possibility of rising inflation would signal a tightened monetary policy. This explained why the bank projected the basic interest rate will rise by 50 basis points in Q3, instead of Q4 as previously forecast.

Regarding GDP, Standard Chartered maintained its 2022 forecast at 6.7%, as economic indicators recover on a large scale. The recovery may accelerate substantially in late Q2/2022 as domestic demand and tourism recover, it added.

World Bank last week lowered Vietnam’s 2022 GDP projection to 5.3% due to challenges in terms of rising Covid-19 infections and the country’s vulnerability to external shocks due to its high economic openness. This estimation is much lower than that of other international institutions.

ADB on Wednesday last week stated that it anticipated Vietnam’s growth rate to converge to its pre-pandemic level of 6.5% in 2022 and 6.7% in 2023 thanks to “high vaccination coverage, the shift to a more flexible pandemic containment approach, expanding trade, and the government’s economic recovery and development program.”

On Thursday the same week, HSBC lowered the country’s economic expansion forecast by 0.3% to 6.2%, due to the impact of the global fuel shortage. Fitch Ratings in a release some days prior estimated the figure at 6.1% in 2022 and 6.3% in 2023, from 2.6% in 2021, led by a recovery in domestic demand, strong exports and high FDI inflows, particularly in the manufacturing sector. Previously, in March, IMF put its forecast at 6.6%.

“The government lifted its quarantine requirement for international arrivals in mid-March. We think the reopening of tourism, which accounts for close to 10% of GDP, is the key development to watch in Q2/2022 after a two-year closure,” said Tim Leelahaphan, economist for Thailand and Vietnam at Standard Chartered.

In addition, the creditor maintained its medium-term constructive view on the Vietnamese dong, driven by a supportive external balance. Despite higher commodity prices, Vietnam’s current account is likely to remain in a surplus this year given tourism recovery.

Standard Chartered forecasts the exchange rate at VND22,300 and VND22,000 per U.S. dollar by the end of 2022 and 2023, respectively.

Vietnam remains a manufacturing hub and key link in the global supply chain despite geopolitical and pandemic-related challenges, it said. FDI began to rebound this year after shrinking in 2021, and the lender expected this trend to continue, particularly in sectors like manufacturing, electricity and gas, and air conditioner supplies.

Foreign investors remain the key driver of Vietnam’s contribution to the global supply chain. Several major global tech enterprises have shifted (or plan to shift) production from China to Vietnam in recent years to diversify their supply chains, according to the creditor.

“Vietnam remains attractive as a regional manufacturing hub for sectors including electronics, textiles, garments and footwear,” added Leelahaphan.