UOB Revises Vietnam’s 2024 Growth Forecast Upwards to 6.4%

8 October, 2024

Quarterly Growth at Fastest Pace in 2 Years

Vietnam’s real GDP in Q3 2024 grew by 7.4% year-on-year, surpassing the market’s average forecast of 6.1% and UOB’s projection of 5.7%. This marks the fastest growth pace since Q3 2022, as activities rebounded strongly post-pandemic recession. The latest result, coupled with the previous quarter’s adjusted growth of 7.09%, led to a cumulative expansion of 6.82% year-to-date in 2024.

Both the manufacturing and services sectors remained the key drivers of business activities, while foreign trade sustained its robust pace in Q3 2024. The surge in semiconductor sales since mid-2023 indicates that this growth momentum is likely to persist for the next 1-2 quarters.

With the impressive performance in Q3 2024, despite the impact of Storm Yagi, GDP growth for the year-to-date in 2024 reached 6.8%. UOB is revising Vietnam’s full-year growth forecast upwards to 6.4% (from 5.9% previously) to reflect both the year-to-date outcome and the disruptions in activities at the beginning of Q4 2024.

Upward Revision in Full-Year Growth Forecast

The surprising performance in Q3 2024, despite the devastation caused by Storm Yagi, resulted in a year-to-date GDP growth of 6.8%, aided by a low base (4.2% in the first three quarters of 2023) and robust growth in both the industrial and services sectors in 2024.

Vietnam’s latest Purchasing Managers’ Index (PMI) sharply reversed to 47.3, falling into contraction territory for the first time after five consecutive months of expansion. This development raises concerns about the country’s production capacity and supply chains, as well as the agriculture and services sectors, in the face of disruptions caused by Storm Yagi. These disruptions are likely to be more evident in the October-November period, leading to a projected growth slowdown to 5.2% year-on-year in the current quarter, down from 7.4% in Q3 2024.

For the full year of 2024, GDP growth will be bolstered by the year-to-date cumulative expansion of 6.8% year-on-year. Consequently, UOB is upwardly revising its full-year growth forecast to 6.4% (from 5.9% previously), nearing the upper end of the official growth target range of 6.0-6.5%. The growth forecast for 2025 remains at 6.6%, reflecting the expected output boost in early next year to make up for previous losses due to Storm Yagi, as well as the spillover effects from the US Federal Reserve’s easing policy and China’s economic stimulus measures.

SBV to Maintain Interest Rates for Now

With CPI inflation showing signs of easing, the strength of the USD expected to further weaken following the Fed’s dovish pivot, and the negative spillovers from Storm Yagi, the case for the State Bank of Vietnam (SBV) to shift towards monetary easing has gained more traction. However, this needs to be balanced with factors such as robust economic performance, particularly in Q3 2024, and the potential for inflationary pressures in Q4 2024 post-Storm Yagi, given the dominance of food (33.6%) and housing (18.8%) in the CPI basket. Therefore, the SBV is likely to adopt a more targeted approach to support affected individuals and businesses in their areas, rather than deploying a broad-based nationwide tool such as a rate cut. Hence, UOB predicts that the SBV will keep the refinancing rate unchanged at 4.5% while focusing on promoting credit growth and other supportive measures.