Vietnam economy likely to rebound in H2: Standard Chartered

Vietnam’s slowing economy is expected to recover in the second half of this year, Standard Chartered Bank said in its latest report.

The bank also forecast interest rates in the country would return to pandemic levels.

In its research report “Vietnam Macro: Slower Q2 GDP to justify more rate cuts”, Standard Chartered predicted Vietnam’s Q2 economic growth to slow to 1.5% year-on-year (from 3.31% in this year’s Q1), posing downside risks to the bank’s 6.5% growth forecast for the country for the entire year.

According to the bank, June’s Vietnam macro data will likely continue to improve slightly from May but remain relatively weak as a still-deep contraction in trade leads to slower manufacturing and economic activity.

Standard Chartered forecast the State Bank of Vietnam will cut the benchmark refinancing rate by another 50 basis points in Q3 this year (the same level as during the pandemic years) and stay on hold until the end of2025.

The Vietnamese central bank cut the rate to 4.5% from 5% on June 16, effective on June 19. This followed two 50-basis point cuts in March and May.

Tim Leelahaphan, Standard Chartered economist for Vietnam and Thailand, said: “We think the State Bank is currently focused more on growth amid easing price pressure. While it is reversing the monetary tightening implemented last year, lingering concerns about inflation and financial instability should prevent additional rate cuts beyond the 50 basis points we currently expect.”

In this new report, Standard Chartered predicted Vietnam’s exports to fall 5.2% year-on-year in June, imports to fall 17%, and industrial production growth to edge up to 1.2%. The trade surplus is likely to rise to $4.1 billion in June from $2.2 billion in May.

Inflation may ease further to 2.2% year-on-year in June from 2.4% in May, according to the creditor.

The World Bank, in its June edition of Vietnam Macro Monitoring on June 19, said streamlining administrative procedures and removing regulatory hurdles could help promote activities and investments for Vietnam’s economic growth.

Reviewing the economy in the first five months of the year, the WB pointed out industrial production had continued to weaken, trade was still in contractionary territory, foreign direct investment (FDI) slowed, and credit growth continued to decelerate, indicating weak demand.

The WB has cut its Vietnam’s GDP growth forecast this year to 6% in its June edition of “Global Economic Prospects”, but the figure remains among the highest in Asia, on par with the Philippines. Previously, the bank estimated Vietnam’s 2023 GDP growth at 6.3%.