Dragon Capital has upped its inflation forecast for this year from 3.5 percent to 3.58-4.18 percent following the surge on oil prices due to the Russia-Ukraine imbroglio.
The crisis would not directly affect the Vietnamese economy since the country’s trade with them accounts for less than 2 percent of its total, but the rising energy prices would drive up inflation, the fund management company said.
Transportation and energy currently make up 9.7 and 3.6 percent of the goods basket that makes up the consumer price index (CPI).
JP Morgan estimated oil prices range from US$88-115 per barrel this year, saying the situation in Ukraine and progress in the Iran nuclear talks are the two main factors.
Russia is the world’s third largest oil exporter. The conflict, which can disrupt Russian oil supply to Europe via pipelines, will affect global supply.
Speaking to OilPrice.com, market intelligence firm Kpler said Iran could fully recover its oil production within a year since the sanctions on its oil exports have been lifted.
The new supply from Iran could immediately reduce global prices by 5-10 percent, it said.
In the worst case scenario, in which Russia steps up action against Ukraine and no nuclear deal is reached with Iran, prices are likely to average $115 per barrel.
If the Russia-Ukraine crisis escalates but the Iran deal is sealed, prices will drop to $100.
In the best case, if both the deal is completed and the conflict eases, they will fall to $88.
But Dragon Capital also noted that global oil prices might not affect the Vietnamese economy as predicted since, to stabilize things and control inflation, authorities could cut the taxes and fees on fuel.
The Ministry of Finance is preparing to auction 100 million liters of RON 92 gasoline from the national reserve this month to increase supply.
The government has instructed the Ministry of Finance to consider reducing the environment tax on gasoline, and it will also be discussed at the next session of the National Assembly.
Taxes and fees account for 42-43 percent of retail prices, with environment tax being the highest at 15 percent.
Dragon Capital said inflation based on oil prices alone was “not of much concern” since the prices of other goods and services like electricity, water, healthcare, and education could be cut by the government.
But it said Vietnam’s trade surplus could fall this year from the previous forecast of $13.2 billion to $12 billion if oil prices remain high.
Vietnam has imported $6 billion worth of petroleum products a year for the last four years.
Industries like electronics would be affected by the disruption in the global supply chain due to the conflict, it said.
Russia and Ukraine are major suppliers of nickel, krypton, aluminum, and palladium, all important items in the production of semiconductor chips, and any disruption in their supply can hit electronics manufacturing.
Vietnam imports processors from South Korea, Japan and Taiwan.
The three have voiced support for the west’s economic sanctions, and might also take some measures themselves against Russia.
Vietnam imported $59 billion worth of semiconductors, phones and electronic components from the three in 2021, or 17.6 percent of its total imports.
The tension between Russia and them could raise the cost of manufacturing mobile phones and electronics in Vietnam, Dragon Capital said.
Vietnam’s inflation rate last year was 1.84 percent, the lowest since 2016.
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