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Why inflation may not be Vietnam’s biggest concern in 2022?

Why inflation may not be Vietnam’s biggest concern in 2022?

Tuesday 15, 02 2022
HSBC has recently raised Vietnam's predicted inflation rate to 3%. However, the bank also stated that inflation might not be Vietnam's greatest concern in 2022.

Inflation rate of Vietnam will reach 3%

HSBC has just released its first update report of Vietnam’s economy in 2022. In the said report, Vietnam’s inflation rate is predicted to rise from 2.7% to 3%.

According to HSBC, fuel inflation continued to increase, pushing January's figure to 1.9% year on year. However, food prices in Vietnam have remained stable in the context of inflation due to a lack of demand.

HSBC

HSBC stated that the average inflation rate in 2022 is forecasted to increase slightly to 3% compared to the previous forecast of 2.7%. However, this level does not pose a risk to the operating policy of the State Bank of Vietnam, as it is still lower than the Government inflation target of 4%.

HSBC also said that while the inflation situation in many ASEAN countries, such as Thailand and Singapore, has begun to attract the attention of many people, inflation is likely to be not a big concern for Vietnam this year.

This bank assessed that although the number of new COVID-19 infections increased, Vietnam did not apply strict restrictive measures as before. Policymakers have persisted in pursuing a "living with the virus" strategy, largely thanks to the rapid implementation of vaccination programs. These conditions cause consumer sentiment to increase again, helping to improve the domestic consumption competition. Specifically, after falling nearly 4% in 2021 year-on-year, retail sales increased 1.3% in January 2022 year-on-year.

According to HSBC, most importantly, Vietnam's main growth engine has begun to see strong recovery steps as the labor shortage continues to improve. After the Lunar New Year holiday, over 90% of workers returned to Ho Chi Minh City. In the first month of the year, export growth was not high at 1.6%, affected by a 34% drop in phone exports, but this decline comes from the base effect Samsung has launched its flagship phone model. Galaxy S21 earlier than usual in January 2021. The S21 launched last year has pushed exports up steadily. HSBC expects export data to be similarly positive in February 2022 when the S22 model is launched on February 25.

In addition, the purchasing managers’ index (PMI) rose to the highest level in the past nine months, showing a sign of strong industrial output in Vietnam again. Most of the key detailed indicators point to a sustained recovery, forecasting an optimistic outlook on manufacturing that will return to pre-COVID-19 levels.

PMI

VAT lowered to ease inflation pressure

In Decree 15, which has just come into effect starting February 2022, the Government has decided on lowering value-added tax (VAT) for some services from 10% to 8%. Economists believe that the Government's decision in Decree 15 will help reduce the pressure of inflation.

Vietnam’s consumer price index in 2021 increased by 1.84% compared to the previous year. That is the lowest increase since 2016, showing that Vietnam’s economy has not yet experienced inflation. However, the risk of inflation in 2022 is still a concern of people and companies, because Vietnam's economy has a large openness and is easily affected by external factors. Therefore, controlling inflation remains one of the issues that the Government is particularly concerned about.

Vietnam’s consumer price index

According to calculations by the Ministry of Finance, it is expected that the implementation of the VAT reduction policy will reduce state budget revenue in 2022 by about 50,000 billion VND.

Ms. Nguyen Thi Cuc, President of the Vietnam Tax Consultants Association, commented that VAT is currently the tax that accounts for the largest proportion of total state budget revenue, and reducing the tax rate from 10% to 8% will be a big save for consumers. The 50,000 billion VND saved will reinvest in production or re-purchase more consumer goods.

 

Compiled by VietnamCredit

Categories
Vietnam Economy

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