Vietnam’s 2023 GDP growth target out of reach: UOB

Vietnam’s official GDP growth target of 6.5% for this year is not achievable as economic recovery has fallen short of expectations, Singapore-based bank UOB said Monday.

It said a note that in the first nine months of 2023, Vietnam’s economy expanded by 4.24% year-on-year, which was an improvement on the 3.72% in the first half of 2023, but only half the 8.85% recorded in the same period last year.

To meet the official target, Vietnam’s October-December growth rate will need to be at least 12%, which is unlikely in the current environment without sharp improvements in the underlying demand, the bank said.

At the latest cabinet meeting last weekend, Prime Minister Pham Minh Chinh asked government agencies to do their best to achieve full-year growth of 6% by managing monetary and fiscal policies flexibly and boosting public investment.

Despite firmer growth in Q3, the drag from the first six months of the year remains significant. UOB, therefore, has cut its full-year GDP growth forecast for Vietnam to 5% from the earlier 5.2%, the second downward revision in less than two weeks.

The revision has been made with the assumption of further acceleration of real GDP growth in Q4 at 7% year-on-year, against the prior forecast of 7.6%.

This would still require that activities and orders pick up quickly in the coming months. Traditionally, Q4 is the best performing quarter in any given year in Vietnam, though the base effect will play a disproportionately large role in 2023 due to the exceptionally strong year in 2022, UOB noted.

Vietnam’s GDP pace has gained momentum towards the year-end. Official data shows that the economy expanded 5.33% year-on-year in Q3, accelerating from 4.05% in Q2 and 3.28% in Q1.

“This was underpinned by improvements in trade performances and manufacturing sector output, as well domestic activities. The outcome came close to our expectation (5.6%) and above the Bloomberg estimate of 5%,” the bank noted.

Its 2024 projection remains unchanged at 6.0%.

Bright FDI prospect

Despite the uncertain outlook, foreign enterprises continued to commit to the country in the current wave of de-globalization, de-risking, and supply chains shifts.

UOB pointed out that external demand had made a turnaround, evidenced by expanding exports and rising industrial output.

One reason that conditions are likely to improve further is the continued inflow of foreign direct investment (FDI) into Vietnam. Despite a backdrop of weak growth prospects and poor export performances much of the year, foreign enterprises continued to commit to the country in the current wave of de-globalization, de-risking, and supply chains shifts.

Vietnam’s disbursed FDI rose for the fourth straight month in September 2023 with a 2.2% year-to-date gain at $15.9 billion, compared to the 1.3% year-on-year increase in the January-August period and the 17.2% rise in the January-September period in 2022.

According to UOB, if the same pace continues, full year inflows of FDI are likely to match the $19.7 billion in 2021, which is a considerable achievement considering that the current situation is dominated by uncertainty, inflation pressures, and weakened confidence.

The World Bank has revised down its Vietnam GDP growth forecast to 4.7% in 2023 and 5.5% in 2024, according to the bank’s October edition of its East Asia and The Pacific Economic Update.

The figures are lower than the forecast of 6.3% for 2023 and 6.5% for 2024 in the April edition of the report, but unchanged from its “Taking Stock August 2023: Making Public Investment Work for Growth” report.