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StanChart forecasts rate cut if Covid impact lasts beyond Oct

By Dung Nguyen

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HCMC – Standard Chartered has forecast a potential interest rate cut if the economic impact of Vietnam’s Covid outbreak lasts beyond October.

Besides, Standard Chartered has revised down its gross domestic product (GDP) growth forecast for Vietnam in 2021 to 2.7% from 4.7%. This reflects the unexpected Q3 contraction of 6.2% year-on-year. The bank expects the recovery to accelerate in 2022 and maintains its 2022 growth forecast at 7%.

Early last month, Standard Chartered revised down its GDP growth forecast for Vietnam to 4.7% from 6.5% for 2021 and 7% from 7.3% for 2022 due to softening economic indicators.

“While we expect growth to start recovering in the fourth quarter of 2021, this hinges on progress toward reopening businesses. We continue to expect a post-Covid growth acceleration but turn more cautious pending clearer signs of recovery. Vietnam’s pandemic management is crucial to the near-term outlook,” said Tim Leelahaphan, economist for Thailand and Vietnam at Standard Chartered.

The economist anticipates the State Bank of Vietnam (SBV) will keep its policy rate on hold at 4% to support credit growth and remain vigilant against inflation risks, which are driven by supply-side factors.

Standard Chartered sees downside risks to its growth forecast and a potential interest rate cut if the economic impact of Vietnam’s Covid outbreak lasts beyond October. Such a scenario could affect the external position.

An extended outbreak, with containment measures in place for longer, could have both short-term and longer-term effects on Vietnam’s economy, exacerbating vulnerabilities such as rising inflation and limiting fiscal room for development.

According to the General Statistics Office (GSO), Vietnam’s GDP in the third quarter of this year fell 6.17%, the sharpest fall since the country calculated and announced the quarterly GDP.

Nguyen Thi Huong, general director of the GSO, said the biggest GDP decline ever in the third quarter caused the January-September GDP to grow a mere 1.42% year-on-year, the lowest for the period in a decade.

The GSO’s report also showed that the long-lasting pandemic had put many businesses on the verge of bankruptcy. In January-September, 90,300 enterprises withdrew from the market, up 15.3% year-on-year.

As for the foreign investment, foreign investors poured US$22.15 billion into Vietnam in January-September, up 4.4% year-on-year. The number of new foreign direct investment projects dropped 37.8% year-on-year but the registered capital rose 20.6%.

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