Cementing Vietnam’s development in 2022 and beyond

Michele Wee, CEO of Standard Chartered Bank Vietnam

After the first quarter, many local and international organisations started increasing Vietnam’s GDP growth forecast. The Ministry of Planning and Investment also raised its target to 7 per cent. Do you think that this target is possible?

We maintain our GDP growth projection of 6.7 per cent for this year, up from sub-3 per cent at the height of the pandemic.

The economic recovery has shown signs of broadening; macroeconomic indicators continued to recover in June. However, Vietnam’s GDP growth of 6.4 per cent in the first six months of this year was still below the pre-pandemic level.

The recovery may accelerate markedly in the second half of this year, particularly as tourism reopens after a two-year closure. That said, rising global oil prices may have negative consequences for the economy.

We maintain our 2023 growth forecast of 7 per cent, as we believe Vietnam’s positive medium-term outlook remains intact.

Vietnam’s economic outlook seems positive with the above forecast. The global economy, however, has many challenges in terms of inflation and tightening monetary policy. How will it impact Vietnam's economy?

Vietnam’s positive medium-term prospects remain intact despite setbacks to globalisation.

However, three factors could adversely affect the economic outlook: 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. On the trade front, the White House has said it is reviewing tariffs on some US imports from China to ease inflation; we think this could slow the pace of investment relocation from China to Vietnam, reducing investment inflows to Vietnam or even resulting in outflows.

Meanwhile, a global recession could hit exporters hard, and exports are equivalent to more than 100 per cent of Vietnam’s GDP.

We maintain our 2022 and 2023 inflation forecasts of 4.2 per cent and 5.5 per cent, respectively.

Inflation remains under control for now. 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.

What are your views on the trend of increasing the USD/VND exchange rates in Vietnam?

We raise our USD-VND forecasts to account for pressure on the goods trade balance from elevated commodity prices.

We now forecast USD-VND at 23,000 at the end of Q3 (prior forecast was 22,700) and 22,800 at the end of Q4 (from 22,500). We expect sharp VND appreciation next year.

What are your views on the monetary policy of Vietnam?

We appreciate the State Bank of Vietnam’s (SBV) current approach, which has helped to stabilise the macro-economic conditions and support businesses.

There have been good measures introduced to address difficulties facing customers affected by COVID19 and most recently the launch of the 2 per cent interest rate support package from the state budget for loans to businesses and cooperatives.

Having said this, whilst we have not seen SBV explicitly signal a change in policy, we have seen signs of a shift towards a less accommodative stance.

This is not broad-based and is focused on select sectors. Take, for example, real estate where the SBV’s decision to tighten controls on real-estate credit appears to be aimed at restricting speculation and preventing a bubble; keeping property prices in check is also key to maintaining Vietnam’s attractiveness to foreign investors.

Policymakers need to balance supporting growth against maintaining price stability. We expect the SBV to keep the policy rate on hold at 4 per cent in 2022 and normalise policy in the fourth quarter of 2023, with a 50bps hike to 4.5 per cent.

The SBV is likely to stay vigilant against inflation and financial instability, particularly amid ongoing geopolitical risks. We expect a continued accommodative stance this year as economic activity is prioritised.

The SBV has not signalled a change in its stance yet, as Vietnam’s economic recovery has just started and inflation remains in control for now.

However, we see a risk that the SBV may raise rates earlier than we expect if rising inflation and a weaker-than-expected VND are observed and especially if the Fed maintains a relatively hawkish stance.