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Vietnam’s recovery to gain momentum in Q2: Standard Chartered

The country remains a manufacturing hub and a key link in the global supply chain despite geopolitical and pandemic-related challenges.

Vietnam is expected to maintain its 2022 GDP growth at 6.7% as the recent bounce in economic indicators has become more broad-based.

 A property project in Dong Anh District, Hanoi. Photo: Pham Hung/ The Hanoi Times

Such were the conclusions drawn by Standard Chartered Bank in its recently released marco-economic report titled “Vietnam - Recovery to gain momentum in Quarter 2”.

The recovery is likely to accelerate markedly in late Quarter 2 (Q2) as domestic demand and tourism recover even though short-term uncertainty prevails, particularly around the tourism recovery and pandemic risks.

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% of GDP, is the key development to watch in Q2-2022 after a two-year closure.”

According to Standard Chartered’s economists, Vietnam remains a manufacturing hub and a key link in the global supply chain despite geopolitical and pandemic-related challenges. Inward FDI has resumed growth this year after contracting in 2021. The bank expects this to continue, particularly in sectors such as manufacturing and electricity, gas, and air conditioner supplies.

Leelahaphan underlined foreign investors remain the key driver of Vietnam's contribution to the global supply chain. Several major global tech companies have shifted (or made plans to shift) production to Vietnam 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,” he added.

Standard Chartered Bank maintains its 2022 and 2023 inflation forecasts of 4.2%  and 5.5%, respectively for Vietnam. Supply-side factors pose upside risks to inflation, particularly given the ongoing geopolitical situation. Over the medium term, demand-push inflationary factors are likely to kick in as the economy recovers.

The bank holds a constructive view of the VND, driven by a supportive external balance. Vietnam’s Current Account is likely to remain in a surplus this year, despite higher commodity prices, amid a recovery in tourism. It forecasts USD-VND at 22,300 by end-2022 and 22,000 by end-2023.