HSBC points out three challenges for Vietnam’s economy in H2

Ngo Dang Khoa, country director of foreign exchange and capital markets at HSBC Vietnam, has suggested three challenges that the Vietnamese economy would face in the second half of this year.

HBSC has recently lowered its economic growth forecast for Vietnam this year from 6.6% to 6.1% following the fourth wave of COVID-19, which is the worst outbreak since the start of the pandemic.

Regarding the macro economy, the latest outbreak has caused disruptions in supply chains and would affect the sustainable recovery of the Vietnamese economy in the long term.

“With the closure of industrial parks and a long period of social distancing, Vietnam’s economic growth will definitely face many challenges in the third quarter and the second half of 2021 as a whole,” he said.

Social distancing measures to curb the spread of the coronavirus have also affected the consumption outlook and the recovery of the services and tourism industries.

Besides, the new variants of COVID-19 and the slow vaccination progress would delay the reopening of borders to foreign investors and tourists.

“Timely fiscal and monetary policies are needed to help businesses and citizens overcome difficulties,” he suggested.

In terms of the exchange rate, it would be hard to maintain a stable VND-US$ exchange rate in the second half given Vietnam’s trade deficit, inflation worries and the possible rise in US interest rates. Khoa predicted the exchange rate to be VND23,100 per dollar by the end of this year.

According to Khoa, unlike Western countries, Vietnam and other Asian countries have yet to see inflationary pressure. However, if prices continue to increase, the State Bank of Vietnam might have to raise interest rates.

He suggested that Vietnam should not increase interest rates too early or too quickly as the economy is severely affected by the pandemic.

Despite many challenges, HSBC still forecast a positive outlook for the Vietnamese economy in 2022 thanks to its strong motivation for economic growth.

The bank has revised upward its forecast for Vietnam’s economic growth next year to 6.8% from the previous 6.5%.

“Once the pandemic is brought under control, Vietnam will benefit from strong recovery driven by technology development and foreign direct investment, becoming one of the most potential countries in the region,” Khoa concluded.

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