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The forecast is highlighted in the bank’s recently published global research report titled Still Battling Headwinds and Vietnam-focused macroeconomic research report titled Vietnam – Moving back to High Growth.
“The economy should continue to bounce back in 2022 as the pandemic improves. Income growth has outpaced spending growth in recent years; this provides a decent savings buffer against the pandemic.” said Tim Leelahaphan, economist for Thailand and Vietnam at Standard Chartered, “COVID-19 remains a key risk, at least in the short term. The first quarter could see a full resumption of factory operations, after closures in Q3/2021, and government stimulus; clearer recovery is expected in March.”
According to Standard Chartered’s economists, exports should be supported in 2022 by a continued improvement in the global trade environment, although import growth is likely to remain high.
Inflation may become more of a concern for Vietnam in 2022. Supply-side factors – including higher commodity prices, exacerbated by the pandemic – are likely to be the key driver near-term; and demand pressures will come into play as the economy develops further. A prolonged virus outbreak could lead to supply-driven inflation risks. In the next two years, inflation forecasts for Vietnam are 4.2 per cent and 5.5 per cent respectively.
The State Bank of Vietnam is expected to keep its policy rate on hold at 4.0 per cent in 2022 to support credit growth and manage inflation risks and normalise the policy in 2023, with a 50 basis points hike to 4.5 per cent in Q4/2023.
Standard Chartered Bank maintains its medium-term constructive view on the VND amid expectations of a strong balance of payments. The rapid pace of appreciation since July reflects more flexible exchange rate management by the central bank.
The VND is among the best-performing emerging market currencies in 2021. However, the bank expects the pace of appreciation to slow down given that Vietnam’s current account is now in deficit, and the USD-VND exchange is approaching the limits of the rate band.
Nevertheless, Vietnam’s surplus in the balance of payments and the central bank’s foreign exchange policy flexibility should continue to support the VND over the medium term. The bank forecasts a USD-VND rate at 22,500 by mid-2022 and at 22,300 by end-2022.