HSBC raised its forecast for the average inflation rate of 2022 to 3%, recognizing that this level does not represent a significant risk for the State Bank...

According to HSBC's general assessment, after a hard year 2021, Vietnam's economy "hits the ground" in 2022 with firm steps, which can be clearly seen in January's statistics. Despite the increasing number of COVID-19 infections, Vietnam has not applied strict restrictive measures as before.

Policymakers have persistently pursuing the strategy of "living with the virus", mainly thanks to the implementation of a rapid vaccination program. These conditions cause consumer sentiment to rise again, helping to improve the domestic consumption competition.

Specifically, after falling nearly 4% in 2021 year-on-year, retail sales rose 1.3% in January 2022 year-on-year. The increase does not seem to be high, mainly because the results of January 2021 are quite high.

According to HSBC, most importantly, Vietnam's main growth engine has begun to see strong recovery steps as the labor shortage situation continues to improve. After the Lunar New Year holiday, over 90% of workers returned to Ho Chi Minh City. Export growth in the first month of the year of 1.6% also did not appear to be high, dragged down by a 34% drop in phone exports.

In addition, the PMI index rose to the highest level in the past 9 months, showing signs of strong industrial output again. Most of the key detailed indicators point to a sustained recovery, forecasting an optimistic outlook on the manufacturing situation that would return to pre-COVID-19 levels.

While the inflation situation in many ASEAN countries (such as Thailand and Singapore) has begun to attract the attention of many people, inflation is unlikely to be a big concern for Vietnam this year.

In fact, fuel inflation continued to rise, pushing January's figure up 1.9% year-over-year. Despite this, food prices remained stable amid inflation due to a lack of demand.

As a result, HSBC slightly increased its forecast for average inflation in 2022 to 3% from its previous forecast of 2.7%. This level also does not represent a significant risk for the State Bank of Vietnam (SBV) as it is still well below the government's 4% inflation target.

Kylie Nguyen