Economic update – Lower GDP forecast as growing external headwinds

• Vietnam’s 1Q22 GDP grew 5.0% yoy (vs. 4.7% yoy in 1Q21) on the back of strong exports and industrial sector.
• Headline CPI stabilized at 1.9% yoy in 1Q22 (vs. 1.9% yoy in 4Q21), but inflation surge is imminent due to rising food and commodities prices.
• We trim our 2022F GDP growth to 7.1% yoy in baseline scenario (from previous forecast of 7.5%) .

Economy recovery to continue in 1Q22

Vietnam’s economy overcame the negative impacts of the pandemic and higher commodity prices to record 5.0% GDP growth in 1Q22, higher than the growth rate of 4.7% in 1Q21 and 3.7% in 1Q20, according to General Statistics Office (GSO). However, this growth rate is still lower than our previous forecast of 5.5% (+/- 0.3% pts). Regarding to three main pillars of the economy, industry and construction sector grew 6.4% yoy in 1Q22 (vs. 6.3% yoy in 1Q21), service sector rose 4.6% yoy (vs. 3.6% yoy in 1Q21) and agriculture, forestry, fishery sector expanded 2.4% yoy (vs. 3.5% yoy in 1Q21).

We see external headwinds are mounting
We see Vietnam’s constructive growth outlook is supported by a shift to COVID-19 endemic status, but tempered by emerging external headwinds, including (1) The slowdown of global economy due to Ukraine-Russia crisis could tighten the demand for Vietnam’s exports, (2) Growth in the industrial and construction sectors could be slowed due to rising input material prices and logistics costs, (3) The Fed shrinks its balance sheet and raises policy interest rates faster than expected, leading to tighter global financial conditions and (4) China maintains a zero-Covid policy that could negative impact Vietnam’s import and export activities.

We revise down our 2022F GDP growth to 7.1% in baseline scenario
Given the context that Vietnam’s economy is facing challenges due to the Russia-Ukraine crisis, high commodity prices and the Fed’s tightening policy, we lower our GDP growth forecast for Vietnam in 2022 to 7.1% from a previous forecast of 7.5%. Overall, Vietnam will still be one of the fastest growing countries in the Asia-Pacific region in 2022. For 2Q22F, we expect Vietnam’s economy to grow 5.6% yoy (+/- 0.2% pts), improving from a 5.0% growth in 1Q22. We forecast 2Q22F average CPI at 3.1% yoy due to rising commodities prices amid the Russia-Ukraine crisis (vs. 1.9% yoy in 1Q22)

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