HCMC – Standard Chartered Bank has forecast Vietnam’s gross domestic product (GDP) will expand 7.2% this year, following a solid recovery to 8% in 2022.
The forecast is 0.7 percentage point higher than the target approved by the National Assembly.
“We still have a conviction on Vietnam’s high growth potential over the medium term,” Tim Leelahaphan, economist for Thailand and Vietnam, Standard Chartered, said in the bank’s recently published global research report on Vietnam titled “Vietnam – Still enjoying high-growth status”.
“While macro indicators moderated somewhat in the fourth quarter of 2022, they remain largely robust. Retail sales posted solid growth in the second half of 2022, implying improved domestic activity.”
According to Standard Chartered’s economists, the trade balance has tentatively improved; exports may face global headwinds and imports are at risk of reversal.
Foreign investment disbursements have continued to increase, but the outlook hinges on the global economy. Inflation may pose a threat to Vietnam’s continued recovery.
Inflation is anticipated to rise throughout 2023, potentially reaching 6% in the final months of the year and averaging 5.5% in both 2023 and 2024 from 3.2% in 2022, above the 2023 target of 4.5% set this year. Vietnam’s fiscal deficit may persist and be a source of inflation.
Standard Chartered Bank expects the State Bank of Vietnam (SBV) to hike interest rates by another 100 basis points in the first quarter of 2023 and to stay on hold through the end of 2024 as it shifts to a tightening stance to maintain stability.
“We expect the central bank to stay vigilant against inflation, weakening the Vietnamese dong and financial instability arising from risky loans in the real estate sector. The SBV may prefer a relatively strong Vietnamese dong as long as it does not harm the country’s trade competitiveness,” said Leelahaphan.
According to Leelahaphan, the Vietnamese dong has recovered sharply in recent weeks. However, the dong appreciation pace is likely to slow down as several headwinds persist.
The replenishment of forex reserves is likely to be a key priority for the central bank. An improving current account backdrop and tourism recovery will likely support the Vietnamese dong. The U.S. dollar-Vietnam dong exchange rate is forecast at VND23,400 per dollar by the end of 2023 and VND23,000 by the end of 2024.