According to the latest report, VinaCapital’s Chief Economist Michael Kokalari said that the conflict between Russia and Ukraine has created a shock wave in the international financial market, and at the same time has had a significant impact on goods price as well. However, this conflict has had a negligible impact on the Vietnamese economy.
Vietnam’s GDP growth in 2022 will reach 6.5%
The expert said: “The biggest risk in the immediate future is that high oil and commodity prices can increase Vietnam’s inflation by 1-2 percentage points. We are also concerned about the value of the dollar increasing suddenly, which can cause VND 1-2% to depreciate against USD”.
In general, direct economic relations between Vietnam and Russia are relatively small. Bilateral trade relations between the two countries account for less than 1% of Vietnam’s total import and export turnover (about 3.2 billion USD). Besides, in the pre-COVID-19 period, less than 4% of Vietnam’s tourists came from Russia.
In 2021, Vietnam will import about 145 million fertilizers from Russia. It is estimated that this figure is less than 10% of the fertilizer used in Vietnam. Meanwhile, Vietnam’s fertilizer industry is quite developed, with two major listed companies, Phu My Fertilizer and Ca Mau Fertilizer, having total revenue of nearly $1 billion last year.
In addition, about 10% of Vietnam’s coal imports are from Russia. This is the third-largest coal supplier to Vietnam, after Australia and Indonesia.
Although Vietnam produces significant amounts of oil, natural gas and coal, it is still a net importer. In the context of high energy prices, people’s spending will also shift from consumer goods to gasoline. This will partly affect GDP growth this year, the report emphasizes.
VinaCapital estimates that Vietnam’s GDP growth in 2022 will reach 6.5%, down 1 percentage point compared to the previous forecast.
Gasoline prices in Vietnam may increase by 30%
Global oil prices increased by nearly 40% after the Russia-Ukraine tension, at one point increased by nearly 70% compared to the beginning of the year. Retail gasoline prices in Vietnam have increased by nearly 20% compared to the beginning of the year and despite the lag, in general, gasoline prices in Vietnam move in line with world prices.
The expert forecast that gasoline prices in Vietnam could increase by 30% in the coming months. At that time, Vietnam’s inflation will increase by about 1.5 percentage points due to soaring global oil prices. Explaining this, Mr. Michael said that gasoline prices account for 3.6% of Vietnam’s CPI basket, along with the assumption that the increase in gasoline prices will have an indirect impact, pushing up inflation.
Why are the prices of wheat and metals increasing, but not having much impact on Vietnam’s CPI?
According to the assessment report, wheat and industrial metals do not have too much influence on Vietnam CPI. Specifically, the price of wheat has increased by about 50% since the war between Russia and Ukraine, but wheat and other grains contribute very little to Vietnam’s CPI basket. Meanwhile, the price of rice, which accounts for 3% of Vietnam’s CPI, has barely changed in recent weeks.
About 20% of the cost of rice production is fertilizer, but fertilizer prices in Vietnam have not changed much since tensions escalated. Finally, the price of industrial metal has increased all over the world, but so far, the price of steel – considered the most important industrial metal in Vietnam, has only increased by about 6%.
VND may depreciate 1-2%
According to the report, the fundamentals underpinning the VND will remain strong in 2022. Therefore, the previous report had expected the VND to appreciate 2-3% this year. In the first two months of the year, FDI inflows increased by about 8% year-on-year to $2.7 billion, and Vietnam’s trade surplus is likely to recover from 1% of GDP in 2021 to 4 -5% of GDP.
Also in 2021, Vietnam’s trade surplus has shrunk due to the impact of the COVID-19 pandemic. However, according to the PMI survey, export orders of many enterprises have increased dramatically in recent months.
The chief economist of VinaCapital affirmed that the risk of devaluation originates from exogenous factors. When Russia first attacked Ukraine, the DXY index rose more than 1.5%, but then quickly dropped. Furthermore, concerns about Russia’s exclusion from the SWIFT system have severely hampered the liquidity of the dollar in foreign markets, pushing up the dollar’s value.
Thus, the risk of sudden USD appreciation could cause major disruption in the foreign exchange market, causing VND to depreciate 1-2%. According to the report, VND will not depreciate more than 2% because of the above reasons, plus the Fed has the ability to intervene to calm the money market if the situation is worse than predicted.
The report concluded: “Russia’s attack on Ukraine has a direct impact on Vietnam, with the two biggest risks in the immediate future, which is a high global oil price that will boost Vietnam’s inflation by 1-2 percentage points, and VND depreciated 1-2% against USD”.
@ Cafef
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Source: Vietnam Insider