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Economic update – We envisage a stronger GDP growth in 2H22

Economics Note 15/07/2022    245


  • GDP rose 7.7% yoy in 2Q22, the strongest 2Q growth rate since 2011.
  • Vietnam’s headline inflation climbed to 3.4% yoy in June 2022 (vs. 2.49% in May 2022), in line with our forecast.
  • We keep our 2022F GDP growth forecast at 7.1% yoy (+/- 0.3%).

Vietnam’s economy roars back

According to the General Statistics Office (GSO), Vietnam’s GDP rose 7.7% yoy in 2Q22, the strongest second-quarter growth rate since 2011. Strong recovery was contributed to: (1) the recovery of domestic consumption (gross retail sales rose 11.7% yoy in 1H22), (2) strong exports turnover (+17.3% yoy in 1H22) and steady FDI disbursement (+8.9% yoy in 1H22).

We expect higher Vietnam’s GDP growth in 2H22

We expect Vietnam’s GDP to increase 7.8% yoy in 2H22F (vs. -0.2% in 2H21), thus lifting 2022 full-year growth rate to 7.1% yoy (+/-0.3% pts). The main supports come from (1) low base in 3Q21 when Vietnam’s GDP dropped 6.0% yoy, (2) stronger recovery of service activities, including public transport, tourism, and entertainment, (3) new economic stimulus packages, (2% VAT reduction, additional interest rate compensation package worth VND40,000bn, disbursing investment package for infrastructure development worth VND113,050bn,…), (4) the recovery of FDI inflows after the government allowing international commercial flights.

Inflationary is still top-in-mind risk

We expect Vietnam’s inflation to pick up in 2H22 due to (1) Food & foodstuff price index pick up amid higher pork prices (2) Petrol prices would remain high in 2H22, (3) Higher input material prices pull up domestic production costs of consumer goods. However, we believe that the Government could be able to keep the 2022 average CPI below 4.0% yoy. The government has taken effective solutions to curb inflation this year, including reducing environmental tax on gasoline and adjusting prices of public services. Overall, we maintain our forecast for Vietnam’s average CPI in 2022 at 3.5% yoy.

Monetary policy moves in sync with a supportive fiscal push

We believe that the State Bank will make efforts to maintain an “appropriate” monetary policy, not in a hurry to tighten policy immediately to support economic recovery and market stability. Any monetary tightening could be taken place in late-3Q22 or 4Q22, and major rate hikes will be limited, around 0.25-0.5%. We maintain our view that Vietnam’s credit growth remains strong at 14% yoy in 2022F. We expect the SBV to raise the cap of credit growth for some commercial banks from the end of 3Q22F.

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