Vietnam forecast to see slow growth, more rate cuts in Q3: UOB

Vietnam’s real GDP growth in the third quarter of this year is forecast to see little improvement, dragged down by continued weaknesses in the export and manufacturing sectors, while the central bank may consider further interest rate cuts, the Singapore-based UOB bank said in a report.

The bank maintained its full-year growth forecasts for Vietnam at 5.2% for 2023 and 6% for 2024, penciling a projected 5.6% year-on-year growth for Q3/2023 and 7.6% for Q4, translating to 6.6% growth for H2.

In contrast, to meet the official forecast of 6.5% for 2023 and with H1 growth of just 3.72%, the pace of expansion in H2 would have to average more than 9.2% year-on-year, which is “a huge hurdle in the current circumstances”, the bank commented.

After starting off the year at a sluggish pace, Vietnam’s economy expanded 4.14% year-on-year for a cumulative growth rate of 3.72% year-on-year in H1, well below the 6.46% the previous year as well as the official growth target of 6.5%.

The bank named three external risk factors to watch: the Russia-Ukraine conflict and its impact on energy, food and commodity prices; global supply chain shifts and disruptions; and the pace of China’s economic recovery.

On the inflation front, both the headline and core measures of Vietnam’s consumer price index (CPI) have trended below the official target of 4.5%.

In the eight months through August, Vietnam’s headline inflation came in at around 3.1%, higher than the 2.6% in the same period of 2022. UOB analysts see upside risks to Vietnam’s inflation trajectory for the rest of this year.

On the back of the lackluster economic performance, the State Bank of Vietnam (SBV), the country’s central bank, had cut its refinancing rate by a cumulative 150 basis points by June this year to 4.5%. UOB predicts another 100 bps rate cut to 3.5%, but the timing has been shifted to Q4 instead, balancing between growth and inflation risks.

On the currency front, after consolidating at around VND23,500 for the large part of H1, the USD/VND rate rose in Q3, catching up with moves in USD/CNY and trading to a year-to-date high of close to VND24,400.

The VND weakness reflects Vietnam’s economic realities and the easing bias of the SBV. Overall, UOB reiterates its view that the Vietnamese dong will likely follow the broad Asia forex trajectory, with the USD/VND staying elevated in Q4 before normalizing in Q1 next year.

The bank’s updated USD/VND forecasts are at VND24,500 in Q4, VND24,000 in Q1, VND23,800 in Q2, and VND23,600 in Q3 next year.

In the September edition of the Asian Development Outlook (ADO), the Asian Development Bank (ADB) revised down its economic growth forecast for Vietnam to 5.8% in 2023 and 6% in 2024. The figures were down from 6.5% and 6.8%, respectively, from the April edition.

In response to The Investor's question on Wednesday, the ADB hailed the SBV’s effective management of interest rates after cutting them four times this year, going against the global trend of rate hikes.