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Vietnam 2022 GDP growth to reach 8% with policy support, says DBS
VIETNAM’S gross domestic product (GDP) growth for 2022 likely to reach 8 per cent through “favourable base effects and the restart of various growth engines”, said DBS Group Research in a report on Wednesday (Jan 19).
This is a sharp increase from the country’s 2021 GDP growth of 2.6 per cent, “the slowest in 30 years”, said economist Chua Han Teng.
In Chua’s view, the expected growth for 2022 will be boosted by the country’s accommodative monetary policy, which has been supportive of the nascent recovery that has been unfolding since the last quarter of 2021.
He also noted that Vietnam’s various interest rate indicators remain below pre-pandemic levels.
While headline and core inflation was low from weaker Covid-induced demand in 2021, Chua believes price pressures will start to emerge in 2022 due to strengthening economic recovery and a policy rate normalisation that is likely to occur in late 2022.
He expects a “modest” hike of 50 basis points, containing rising inflation within the 4 per cent target for 2022.
Chua also noted that credit has been increasingly channelled towards the industrial and trade sectors, given the important role played by state-owned and joint stock banks in Vietnam’s credit growth target implementation and guidance policy.
These have become key priorities for Vietnam’s policymakers in their 5-year plan, which has, coupled with a weak nominal GDP, led the credit-to-GDP ratio to “new highs” in 2021, he added. Chua expects the trend to stay over the coming years.
While the ratio is positive, he highlights that this remains far from crisis levels.
Fiscal policy is also expected to remain easy in 2022 and 2023, as Vietnam posted in 2021 its highest fiscal deficit in many years, the economist said.
He also noted that the country’s fiscal support is also smaller than other South-east Asian countries and has focused on tax deferment.
While Chua believes Vietnam has improved overall in terms of inoculation pace and country movement amid Covid-19, he thinks some curbs may return due to the possible spread of Omicron.
Meanwhile, he projects the Vietnamese dong to return to a gradual appreciation path in 2022.
“Policymakers are likely to allow foreign exchange strength to quell US’ undervaluation concerns amid positive Vietnam fundamentals,” Chua said.
Source: https://www.businesstimes.com.sg/asean-business/vietnam-2022-gdp-growth-to-reach-8-with-policy-support-says-dbs