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The recovery is likely to accelerate significantly in the latter part of the second quarter as the domestic demand and tourism recover. However, short-term uncertainty continues following the recent global events.
Tim Leelahaphan, economist for Thailand and Vietnam at Standard Chartered said, “The government lifted its quarantine requirement for international arrivals in mid-March. We think the reopening of tourism, which accounts for close to 10 per cent of GDP, is the key development to watch after its two-year closure.”
Standard Chartered's experts believe that the country continues to be a manufacturing centre and an important link in the global supply chain, despite geopolitical and pandemic-related concerns in recent years. After shrinking in 2021, foreign direct investment has been increasing this year.
The bank anticipates that this will continue, notably in sectors such as manufacturing, electricity, gas, and air conditioner supplies.
Leelahaphan added, “Foreign investors remain the key driver of Vietnam's contribution to the global supply chain. Several major global tech companies have shifted production from China in recent years to diversify their supply chains. Vietnam remains attractive as a regional manufacturing hub for sectors including electronics, textiles, garments, and footwear.”
Standard Chartered maintains its inflation predictions for 2022 and 2023 at 4.2 per cent and 5.5 per cent respectively.
Supply-side variables increase the likelihood of inflation rising, even more so given the current geopolitical environment.
As the economy improves over the longer term, demand-push inflationary forces are anticipated to kick in. The bank believes in a favourable outlook for local currency, owing to a positive external balance.
The dollar exchange rate is forecast at 22,300 by the end of the year and 22,000 by Q4 2023.