Vietnam’s economic growth to slow down to 6.5% in 2023: Fitch

Data released on September 29 showed that Vietnam’s real GDP growth accelerated sharply from 7.8% y-o-y in Q222 to 13.7% y-o-y in Q322. That marked the fastest pace of growth in more than a decade and brought year-to-date growth to 8.8% y-o-y. 

As of now this year, exports have been resilient, accommodating policy settings have been made, and Covid-19 limits have been eased. While the GDP is now expected to grow by 7.8% in 2022, a decline to 6.5% in 2023, according to Fitch. 

Given that favorable base effects are diminishing, domestic monetary tightening is already underway, and the outlook for global demand is continuously worsening, Vietnam's quarter third 2022 real GDP increase of 13.7% year-on-year is probably the peak for growth.

On September 22, the State Bank of Vietnam increased its benchmark refinancing rate by 100 basis points (bps), bringing it to 5.00%. It is anticipated two more increases of 50 bps each before the end of 2022 and the beginning of 2023. The most recent boost immediately followed the US Federal Reserve's (Fed) hawkish signals.

The SBV will continue to face pressure to tighten policy because the Fed is expected to raise interest rates to 4.50% by year's end. This is done to maintain currency and financial stability. Rising inflation is probably going to encourage the central bank to keep raising interest rates.

Throughout much of 2022, inflation was relatively low, but it is now close to the SBV's plan of 4.0% after most recently increasing from 2.9% year-over-year in August to 3.9% in September.

Over the upcoming months, inflation is probably going to increase, even more, reaching its peak only in a quarter second in 2023. According to predictions from Fitch, inflation will be on average 3.2% and 3.8% in 2022 and 2023, respectively.