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VinaCapital experts predict that gasoline prices in Vietnam may increase by 30% in the next few months

VinaCapital experts predict that gasoline prices in Vietnam may increase by 30% in the next few months - Photo 1.

According to a recent report, VinaCapital Chief Economist Michael Kokalari said that the conflict between Russia and Ukraine has created a shockwave in international financial markets, and at the same time has had a significant impact on prices, of goods as well. However, this conflict 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 near term is that high oil and commodity prices could increase Vietnam’s inflation by 1-2 percentage points. We are also worried about the value of the dollar rising. Suddenly, it could lead to VND 1-2% to depreciate against the USD”.

VinaCapital experts predict that gasoline prices in Vietnam may increase by 30% in the next few months - Photo 2.

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 imports and exports (about 3.2 billion USD). In addition, in the pre-COVID-19 period, less than 4% of Russian tourists came to Vietnam.

By 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 thriving, with the two major listed companies, Phu My Fertilizer and Ca Mau Fertilizer, having total revenues of nearly $1 billion last year.

In addition, about 10% of Vietnam’s coal imports come from Russia. It 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, public spending will also shift from consumption goods to gasoline. This will partly affect GDP growth this year, the report emphasizes.

VinaCapital estimates Vietnam’s GDP growth in 2022 will reach 6.5%, down 1 percentage point compared to the previous forecast.

Gasoline prices in Vietnam could rise by 30%

Global oil prices rose nearly 40% after the Russia-Ukraine tensions, at one point increasing by almost 70% compared to the beginning of the year. Retail gasoline prices in Vietnam have increased by almost 20% compared to the beginning of the year and despite the lull, gasoline prices in Vietnam are generally moving along with world prices.

Experts predict 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 world oil prices. Explaining this, Mr Michael said that gasoline prices made up 3.6% of Vietnam’s CPI basket, along with the assumption that rising gasoline prices would have an indirect impact, pushing up inflation.

Why did wheat and metal prices rise, but not have much impact on Vietnam’s CPI?

According to the valuation report, wheat and industrial metals had little effect on Vietnam’s CPI. In particular, wheat prices have 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, rice prices, which account for 3% of Vietnam’s CPI, have been virtually unchanged in recent weeks.

About 20% of the cost of producing rice is fertilizer, but fertilizer prices in Vietnam have not changed much since tensions escalated. Finally, industrial metal prices have been rising worldwide, but so far, steel prices – considered the most important industrial metal in Vietnam, have only increased by around 6%.

VND may depreciate 1-2%

According to the report, the fundamentals underpinning VND will remain strong in 2022. Therefore, previous reports predicted VND will 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 will shrink due to the impact of the COVID-19 pandemic. However, according to the PMI survey, export orders from many companies have increased dramatically in recent months.

VinaCapital’s chief economist emphasized that the risk of devaluation stems from exogenous factors. When Russia first attacked Ukraine, the DXY index was up more than 1.5%, but then dropped rapidly. Furthermore, concerns about Russia’s exclusion from the SWIFT system have severely hampered dollar liquidity in overseas markets, pushing up the dollar’s value.

As such, the risk of a sudden USD appreciation could cause a major disruption in the foreign exchange market, causing the VND to depreciate 1-2%. According to the report, the VND will not depreciate more than 2% for the reasons above, plus the Fed has the ability to intervene to calm money markets if the situation is worse than expected.

The report concludes: “Russia’s attack on Ukraine had a direct impact on Vietnam, with the two biggest risks in the near term being high global oil prices which would increase Vietnam’s inflation by 1-2 percentage points. , and VND depreciating 1-2% against the USD” .

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