Standard Chartered sees Vietnam inflation higher than central bank forecast

"Over the medium term, demand-push inflationary factors are likely to kick in as the economy recovers," the lender said in a note, adding that supply-side factors pose upside risks to inflation, particularly given the ongoing geopolitical situation.

It forecasts a further increase in the rate next year to 5.5 percent.

The State Bank of Vietnam targets inflation of not more than 4 percent this year.

Prices rose by 1.8 percent last year, the lowest rate in six years.

The Asian Development Bank this month forecast Vietnam’s inflation to hit 3.8 percent this year and 4 percent next year, pointing to the instability in global oil prices.

Standard Chartered was confident about Vietnam’s growth potential, forecasting GDP growth of 6.7 percent this year (2.6 percent last year), saying the recent bounce in economic indicators have become more broad-based.

Tim Leelahaphan, the bank’s economist for Thailand and Vietnam, said: "The government lifted its quarantine requirement for international arrivals in mid-March. We think the reopening of tourism, which accounts for close to 10 percent of GDP, is the key development to watch in the second quarter after a two-year closure."

Vietnam remains a manufacturing hub and a key link in the global supply chain despite geopolitical and pandemic-related challenges, the bank said.

FDI started recovering this year after contracting last year, and the bank expects this to continue, particularly in sectors such as manufacturing, electricity and gas,.

Several major global tech companies have shifted (or plan to shift) production to Vietnam from China in recent years to diversify their supply chains, Leelahaphan added.