With performance in the first quarter coming within expectations and a positive start to 2024, prospects for Vietnam this year remain positive despite downside risks stemming from geopolitical tensions, Singapore-based UOB said in a note.
Conflicts between Russia and Ukraine and between Israel and Hamas could disrupt global trade and energy/commodity markets, UOB analysts clarified.
Nonetheless, the recovery in the semiconductor cycle, stable growth in China and the region, and the likely easing of monetary policy by major central banks in the months ahead will support the outlook for the year.
The analysts, therefore, reaffirmed their growth forecast for Vietnam at 6% for 2024, compared to the official 6-6.5% growth target.
According to the General Statistics Office, Vietnam’s real GDP rose 5.66% year-on-year in Q1, extending the momentum of 6.72% in Q4/2023 and 5.33% in Q3/2023, and well ahead of the 3.41% gain posted in the same quarter the previous year, making it the best Q1 performance from 2020 to 2023. UOB named it “a promising start for the year” after a challenging 2023.
One key driver for the robust growth outcome in Q1 has been external trade, with both exports and imports’ rising at the fastest pace since 2021, boosted by strong demand for products such electronics and phones.
Despite the ongoing Russia-Ukraine conflict and dark clouds of shipping disruptions in the Red Sea, exports of goods surged 17% year-on-year while imports gained 13.9% in Q1, resulting in a trade surplus of $8.08 billion. This was a sharp turnaround after both exports and imports declined through most of 2023, resulting in contractions of 5% and 9%, respectively, for the full year 2023.
The analysts go on to say that recent development in the political arena – the resignation of President Vo Van Thuong late last month – is unlikely to affect the country’s broad policy direction.
“Thuong’s predecessor also stepped aside abruptly the prior year, and that hardly dented investors’ actions of bringing in a record FDI of $23.2 billion in 2023. As such, Vietnam’s long-standing policy of welcoming investors and businesses is unlikely to be affected as the government sorts out the succession issue,” UOB analysts reckon.
Asset management firm VinaCapital commented last month that the surprise resignation of President Thuong after being in office for only a year will have no bearing on Vietnam’s economic development or other policies.
“While this sort of news is unwelcome, we believe that it will have no effect whatsoever on Vietnam’s economic development strategy. This has remained remarkably consistent over the last two decades, irrespective of the individuals holding the key positions,” the firm said.
Looking ahead, UOB anticipated that the State Bank of Vietnam (SBV) is unlikely to further cut rates because of accelerating economic activities and better growth prospects in 2024. However, this should not be ruled out totally.
The recent acceleration of inflation rates could see the SBV proceeding even more cautiously in any changes in its policy rates. As such, they believe the SBV will maintain its refinancing rate at the current level of 4.50% for now.
Instead of further lowering interest rates which are constrained by the lower bound, the government has turned its focus to non-interest rate measures to support the economy.
In its “East Asia and Pacific April 2024 Economic Update” released Monday, the World Bank kept its growth projections for Vietnam’s GDP at 5.5% for 2024 and 6% for 2025, unchanged from its forecasts in October 2023, despite the country’s Q1 growth hitting a five-year high on a quarterly basis.
Similarly, Standard Chartered last week kept its 2024 GDP growth projection for Vietnam at 6.7%, with growth accelerating from 6.2% year-on-year in the first half to 6.9% in the latter half.