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Economic update – Emerging uncertainties

Economics Note 19/10/2022    317


  • GDP rose 13.7% yoy in 3Q22, thus lifting the 9-month GDP growth rate to 8.8% yoy, the strongest 9-month growth rate since 2011.
  • We see growing headwinds to mount pressure on SBV to tighten further.
  • We forecast Vietnam’s GDP growth at 7.9% yoy (+/- 0.2 ppt) in 2022F.

3Q22 GDP growth surged on low base 3Q21

According to the General Statistics Office (GSO), Vietnam’s GDP rose 13.7% yoy in 3Q22, largely driven by robust service (+18.7% yoy) and strong industry and construction (+12.9% yoy). For 9M22, Vietnam’s economy expanded 8.8% yoy (vs. +1.4% yoy in 9M21), the strongest 9-month growth rate in 12 years.

Headwinds to mount pressure on SBV to tighten further

Vietnam’s inflation rose Vietnam’s CPI increased by 3.9% yoy in Sep 2022, significantly higher than the previous month’s CPI (+2.9% yoy). For 9M22, Vietnam’s average CPI rose by 2.7% yoy. On external side, FED is on an aggressive path with a possibility of about 150 basis points hike in the next 6 months. We expect SBV might raise policy interest rates by 50-100 basis points in the next 6 months. Thus, refinancing interest rate and rediscount rate likely climb to 5.5-6.0% and 4-4.5%, respectively in the next hike.

Exchange rate will remain under pressure for the rest of 2022

The State Bank of Vietnam (SBV) has decided to widen the trade band of USD/VND spot exchange rate from +/-3% to +/-5%, effective from Oct 17. Following this, the USD/VND exchange rate climbed to VND24,320 (+6.5% ytd). We consider that the exchange rate will continue to be under pressure as the SBV has less room to support the exchange rate than before (FX reserves fell to US$89bn) if the USD strengthens further in the last months of 2022. We expect the VND would depreciate about 6-8% against the USD in 2022.

Vietnam’s strong growth upturn will fade into 4Q22 and 2023

The International Monetary Fund (IMF) warned on their latest report that the global economy could slow down in 2023 with countries accounting for about one-third of the global economy poised to contract by 2022 or 2023. As external headwinds are rising, Vietnam’s export growth and foreign direct investment (FDI) inflows could decelerate in the coming quarters. However, there are a number of supporting factors that help Vietnam minimize risk of the economic slowdown, including abundant disbursement public investment and a strong recovery in foreign arrivals. As a result, we expect 5.6% GDP growth for 4Q22F, bringing 2022F growth to 7.9% yoy. For 2023F, we expect Vietnam’s GDP to decelerate to 6.9% yoy, still among the fastest growing economies in the region.

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