Vietnam on course for strong recovery: Standard Chartered

Standard Chartered Bank has put its GDP growth forecast for Vietnam this year at 6.7% and 7.0% for 2023.

The prediction is highlighted in the bank’s global research report named “Global Focus – Economic Outlook Q3-2022: Near the tipping point”, the creditor said in a release Tuesday.

Last week, HSBC revised up Vietnam’s GDP prediction this year from 6.6% to 6.9%, while International Monetary Fund put its prediction at 6%.

Tim Leelahaphan, an economist for Thailand and Vietnam at the bank, said: “Vietnam’s economic recovery has shown signs of broadening, macroeconomic indicators continued to recover in June.”

Leelahaphan forecast the recovery may accelerate markedly in the second half, particularly as tourism reopens after a two-year closure, but rising global oil prices may have negative impacts on the economy.

The country’s inflation in 2022 and 2023 is predicted at 4.2% and 5.5% respectively.

Inflation remains under control for now, said Standard Chartered economists. Fuel prices have increased, while other components in the CPI basket have seen relatively low prices.

Price pressures - particularly for food and fuel - may increase later in 2022 and in 2023. This could pose a risk to the nascent recovery in domestic consumption. Elevated inflation could also result in search-for-yield behaviour or increase financial instability risks.

Standard Chartered expects the State Bank of Vietnam (SBV) to keep the policy rate on hold at 4% in 2022 and deploy policy normalisation in Q4/2023, with a 50 basis point hike to 4.5%.

“The SBV is likely to stay vigilant against inflation and financial instability, particularly amid ongoing geopolitical risks, although we expect it to stay accommodative this year to support businesses.

“It has not signalled a change in its stance yet, and Vietnam’s economic recovery has just started. However, we see a risk that the SBV may raise rates earlier than we expect, given rising inflation and a weaker-than-expected VND - especially if the Fed maintains a relatively hawkish stance,” said Tim.

The UK-backed bank raises its USD/VND forecasts to account for pressure on the goods trade balance from elevated commodity prices, with the exchange rate projected at 23,000 at the end of Q3/2022 and 22,800 at the end of Q4/2022.

The bank expects sharp VND appreciation next year, along with a likely rebound in Vietnam’s current account surplus.

The macroeconomic study also points out three factors could adversely affect Vietnam’s economic outlook, including: new Covid variants, the lifting of US tariffs on imports from China, and a global recession.

Pandemic concerns persist, despite Vietnam’s shift to a ‘living with Covid’ policy, it noted.

On the trade front, as the White House has said it is reviewing tariffs on some US imports from China to ease inflation, the pace of investment relocation from China to Vietnam is predicted to slow down, reducing FDI inflows to Vietnam or even resulting in outflows. Meanwhile, a global recession could hit exporters hard, the bank added.

Exports of goods and services are equivalent to more than 100% of Vietnam’s GDP.

HSBC Global Research expects Vietnam to be among the region's top growing countries thanks to its resilient economic potential and quick return post-Covid.

The Southeast Asian economy is expected to continue thriving in the second half of this year, said Ngo Dang Khoa, country head of markets and securities services, HSBC Vietnam.

Vietnam's economic expansion in the first half of the year was 6.42%, higher than the 5.1-5.7% target, official data shows.