Standard Chartered trims Vietnam’s 2023 GDP growth forecast to 5%

Standard Chartered Bank has lowered Vietnam’s 2023 GDP growth to 5% from the previous 5.4%, reflecting the weaker-than-expected data year to date and a gloomier global outlook, while revising up inflation.

The revised forecast would require Q4 growth of 7% year-on-year which may still be challenging, the bank said in its update released Tuesday.

The bank maintains robust 2024 GDP growth forecast of 6.7%, with 6.2% in the first half and 6.9% in H2.

Macro indicator shows a tentative improvement while trade has yet to signal a clear manufacturing rebound. However, domestic recovery continues and is likely to strengthen further, with robust retail sales.

External outlook is improving with the current account surplus rising to 3.5% of GDP in 2024 and from 2.0% in 2023. Inflation forecast for 2023 is revised up to 3.4% from 2.8%. The Q4 inflation rate is forecasted to reach 4.3% and likely to rise higher next year.

Inflation may result in search-for-yield behavior and increased financial instability risks, the bank adds. Notably, education, housing, food, transport costs have been major contributors to the recent inflation drive.

“The medium-term outlook remains promising given Vietnam’s economic openness and stability. To reinvigorate FDI inflows, Vietnam needs to resume rapid GDP growth and develop its infrastructure,” said Tim Leelahapan, economist of Thailand and Vietnam at Standard Chartered.

Standard Chartered forecasts that the State Bank of Vietnam, the country’s central bank, will make no more rate cuts and expects a 50 basis-point hike in Q4/2024 to curb expected price pressures, and it to be on hold in 2025.

According to economists from Standard Chartered, capital outflows have accelerated in recent quarters. The bank revised its USD/VND rate forecasts to 24,500 for end-2023, up from the previous 23,400, and 23,500 for end-2024. The recent wave of the Chinese yuan pessimism has pushed the USD/VND rate higher, albeit with a lag.

The bank’s revised projection is in line with the government’s latest update. Prime Minister Pham Minh Chinh on Monday said his cabinet would strive for GDP growth of 5%-plus and tame inflation at 4% this year.