What does the recent rate hike mean to Vietnam?

Despite the high inflation rate in the US, in conjunction with the FED and other major central banks rate hikes and the Quantitative Tightening program of FED, we maintain our expectation of Vietnam’s CPI for 2022 will increase in the range of 3.2% – 4% and remain within Government’s target of 4%. 

Despite fears that Vietnam’s growth prospects could slow in the upcoming quarters of 2022, with good fundamentals in 8M2022, Vietnam’s economy has essentially regained its growth momentum as the post-COVID recovery carries on. We maintain our expectation that the GDP growth rate will continued to record strong growht in the last two quarters of 2022, especially in 3Q2022 with expectation of 10%+ growth, supported by: 

(1) The continuing recovery of all industrial activities (IIP increased 15.6% YoY in August 22 and 9.4% YoY in 8M22), which will push activities from FDI sector in term of investment and export; 

(2) Vietnam emerged as a substitute manufacturing center to cover output losses caused by the zero-COVID-19 strategy in China; and 

(3) The strong recovery of the service sector, after relaxing all COVID-19 related restrictions on service businesses, coming from (1) improvement of domestic consumption (total retail sales of goods and services August 22 increased 50.2% YoY and 8M22 increased 19.3% YoY), (2) reopening international tourism (retail sales of travelling services August 22 increased 51x YoY and 8M22 increased 12x YoY); and (3) normalization of transportation of goods help push trading activities especially export from FDI sector.