In a recent report, UOB forecasts Vietnam's GDP growth in 2022 at 6.5%, in line with the Government's plan of 6.0 - 6.5%. The forecast is based on GDP growth in the second quarter of 2012 will reach 6% year-on-year and then increase to 7.6% in the third quarter of 2022.

According to UOB, Vietnam's real GDP in the first quarter of 2022 increased by 5.03% compared to the same period last year, following the increase of 5.22% in the fourth quarter of 2021 thanks to the recovery of the service sector after the economy The economy is reopened through easing restrictions on movement and distancing.

In which, the manufacturing sector continued to lead the way, contributing to growth, but the largest increase was the service sector in general with an increase of 4.58% over the same period last year, up from 1.22% in the previous year. quarter 4 of 2021 and 3.62% in quarter 1 of 2021.

"It is clear that service activities have benefited from the lifting of Covid-19 restrictions imposed in the second half of 2021," said UOB economists.

Recent data shows that Vietnam's underlying growth momentum remained unchanged in the second quarter of 2022. The manufacturing sector continued to grow strongly, the first 5 months of the year recorded a growth of 9.24% over the same period last year, from 8.28% in the first 4 months of the year and compared with a strong growth of 12, 59% in the first 5 months of 2021. This result is also reflected in the Purchasing Managers' Index (PMI) as of May this year is the 8th month this index continues to increase.

A future indicator is that foreign direct investment (FDI) inflows into Vietnam increased somewhat in May despite the uncertainty surrounding the Russia-Ukraine conflict and rising commodity prices.

Registered FDI capital from the beginning of the year decreased by 16.3% over the same period to 11.71 billion USD and was the 4th consecutive month with a decrease in registration. The strong registered FDI in 2021 at 31.15 billion USD is also a factor affecting this year's declining figures. FDI inflows on a year-on-year basis stood at $28 billion, roughly the same figure achieved in 2020 during the outbreak of the pandemic.

On the consumer side, the lifting of domestic Covid-19 restrictions and the reopening of international tourism activities have given new life to the service sector. Overall retail trade in the first five months of the year increased by 9.69% year-on-year, compared with 6.54% in the first four months and ahead of a 3% decline in 2021, led by services. tourism (up 34.7% compared to the beginning of the year), accommodation and food services (up 15.75%).

However, the agency also noted that a number of external risks are posing challenges to Vietnam's GDP growth prospects, including: (i) the Russia-Ukraine conflict and its impact on commodity prices. goods lead to inflation risks for domestic and foreign demand; (ii) disruption to global supply chains; (iii) tight monetary policy globally; (iv) Covid-19 risks.

After hitting a nearly-year low of 1.4% in February, inflation in Vietnam tended to rise to 2.86% in May, still well below the Bank's 4% target. Rising global food and energy prices as well as supply chain disruptions have contributed to inflation in Vietnam, in particular, transportation-related costs have increased at a rapid pace. double-digit rate in the past 14 months," said the team at UOB.

In addition, with the uncertain outlook from the geopolitical environment and the context that domestic inflation continues to be well managed, the State Bank has enough capacity to keep its policy rates stable from now on. hours to support economic recovery efforts. UOB expects the current refinance rate at 4.0% and the rediscount rate of 2.5% to remain at this record low until at least the end of 2022.

"However, with a more drastic move in tightening policy from the US Federal Reserve, we expect the State Bank to be inclined to start the interest rate hike cycle from the second quarter of this year." 2023 or earlier, if the growth momentum continues and external risks are more worrisome," the UOB report said.

Also according to UOB, VND is not out of the way of the downtrend of Asian currencies due to the drastic increase in interest rates by the US Federal Reserve and concerns about a deeper recession in China. The USD/VND exchange rate rose about 1.7% in the second quarter of 2022 to 23,215, the highest level since August 2020. Supported by a strong growth outlook and domestic inflation that remains under control, VND's downtrend is modest when compared to the Asian Currency Index (ADXY) which fell more than 4% during the quarter.