Vietnam economy can grow 5.5% in 2024, exchange rate can reach VND24,050: Shinhan Bank

Vietnams’s economic growth can reach 5.5% in 2024, thanks to public spending and tourism recovery outweighing external challenges, Shinhan Bank S&T Center anticipated.

In its "Vietnam’s Economy and Financial Market Outlook in 2024" report, the researching body of Shinhan Bank noted Vietnam’s consumer price index (CPI), an indication of inflation, can reach 3.1%; while key interest rates can fall to 4.2% in 2024, from 4.5% in 2023 and 6% in 2022.

Vietnam’s GDP grew 5.05% from 2022 to $430 billion in 2023, while the average consumer price index (CPI) increased 3.25% year-on-year, below the mandated 4.5% limit, according the General Statistics Office (GSO).

Regarding the foreign exchange, Shinhan Bank said the rate can reach a yearly average of VND24,050. The exchange rate is expected to remain high in the first half of 2024 due to negative external conditions such as low external demand and concerns over China’s economic slowdown. In the latter half of 2024, the exchange rate can decline as central banks in major countries may end their tightening policy and cut interest rate.

Vietnam's central exchange rate rose 1.08% to VND23,866 on December 30, 2023, from VND23,612 on December 30, 2022, according to the State Bank of Vietnam (SBV).

The report said easing monteray policy is likely to continue supporting economic recovery. While the U.S. Federal Reserve (Fed) and major developed market economies are nearing the end of their interest rate hikes, the SBV is expected to maintain easing policy to support economic growth.

"There is a possibility that the SBV will be cautious about further rate cuts due to rapid decline in foreign exchange reserves and upward pressure on the USD/VND exchange rate," the report noted.

About Vietnam as foreign direct investment attraction, the report said investments in Vietnam are expected to increase a a result of the elevated partnership between Vietnam and the U.S., particularly in the semiconductor and mineral sectors.

Vietnam is one of the largest beneficiaries from the U.S.-China trade dispute, it noted. Global companies, facing production chain disruptions caused by China's lockdowns in 2022, accelerated their relocation of production bases into Vietnam, Cambodia, and Mexico. Vietnam’s advantage in the trend is its proactive approach in international economic integration, such as participation in free trade agreements (FTAs) like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Regional Comprehensive Economic Partnership (RCEP), and the under-negotiation Indo-Pacific Economic Framework for Prosperity (IPEF).

Vietnam initially focused on low-value-added industries such as textiles and garments, but has now grown into a core production hub for the electronics assembly sector, leading to more incentives for technology companies to invest, the report emphasized.