Standard Chartered Bank has raised its Vietnam GDP growth forecast for 2022 to 7.5% from the previous 6.7% and for 2023 to 7.2% from 7.0% to reflect robust Q3 growth of 13.7% year-on-year. The last quarter of 2022 growth is anticipated at 4.0%.
While the bank lowers its inflation forecast for this year to 3.3% from 4.2%, it expects an acceleration in Q4 to 5.0% from 3.3% in Q3. Inflation has been largely under control; price pressures may increase in the rest of 2022 and in 2023. In addition to supply-side factors, demand-side factors might kick in more strongly.
“We maintain our average 2023 inflation forecast at 5.5%, expecting it to rise throughout next year, reaching around 6% late next year. We see inflation as a threat to Vietnam’s continued recovery,” said Tim Leelahaphan, Economist for Thailand and Vietnam, Standard Chartered Bank.
Standard Chartered’s economists expect the State Bank of Vietnam (SBV) to continue tightening monetary policy and forecast a 50bps hike in the refinancing rate each in Q4-2022 and Q1-2023, taking the rate to 6%, following a 100bps hike to 5% on September 22.
“We see a risk of SBV raising rates more than we expect if inflation accelerates and the Vietnamese dong weakening more than we forecast as the Fed maintains a relatively hawkish stance. We expect SBV to stay vigilant against inflation and financial instability besides helping businesses recover from the COVID-19 impact,” said Leelahaphan.
According to the UK-based lender, the VND is likely to face several headwinds in the short term – a hawkish Fed, strong USD, higher commodity prices, and slowing external demand. The VND continues to significantly outperform its peers across EM Asia, despite recent depreciation.
Standard Chartered Bank expects the pace of VND depreciation to slow in the coming months. USD-VND’s correlation with USD-CNY remains extremely strong. As such, a peak in USD-CNY will likely coincide with a peak in USD-VND. The bank forecasts USD-VND at 24,200 by end-2022 and at 24,000 for end-Q1-2023 and declining towards 23,400 by end-2023.