Vietnam's economic growth may slow down - prospects remain positive

This information is highlighted in Vietnam’s Q2 2024 Economic Growth Report, published by the Market Research and Global Economics Department of UOB Bank (Singapore) on July 2.

Continuing the upward trend

According to UOB analysts, Vietnam's real GDP grew by 6.93% year-over-year in Q2 2024, continuing the upward trend from 5.87% (revised upward from previous announcements) in Q1 2024 and previous quarters. Overall, Vietnam's economy grew by 6.42% year-over-year in the first half of 2024, far surpassing the 3.84% growth in the first half of 2023. This positive result signals a promising outlook for the remainder of the year following a challenging 2023.

Both the manufacturing and service sectors continued to support most business activities, while foreign trade remained strong in Q2 2024. The increase in semiconductor sales since mid-2023 suggests this momentum may continue for another 1-2 quarters.

With better-than-expected performance in Q2 2024, the outlook for 2024 remains bright. However, UOB notes that the second half of this year may see slower growth due to higher base numbers from the second half of 2023 and ongoing risks, including the Russia-Ukraine conflict and Middle East tensions that could disrupt trade and global energy markets.

Despite this, "the recovery of semiconductor demand, stable growth in China and Southeast Asia, and potential easing of monetary policies by major central banks will support Vietnam's prospects. We maintain our growth forecast for Vietnam at 6.0% for 2024, compared to the Government’s target of 6.0-6.5%," UOB’s Market Research and Global Economics Department stated.

Long-term prospect

Notably, the analysis group highlighted that foreign investors remain largely positive about Vietnam's long-term prospects. Evidence of this is the 13.1% increase in registered foreign direct investment (FDI) from the beginning of the year to June, reaching USD 15.2 billion, following a 13.4% increase in Q1 2024. Singapore was the largest source of investment with USD 5.6 billion, far surpassing Japan, Hong Kong (China), and South Korea. The manufacturing and processing sector accounted for the majority of investment in Q2 2024 at 70.4% (compared to 63% in Q2 2023), followed by real estate (16.3%) and wholesale and retail (4%).

FDI disbursed into Vietnam from the beginning of the year to June reached USD 10.8 billion, more than double the USD 4.6 billion in Q1 2024. Notably, actual FDI into Vietnam hit a record high of USD 23.2 billion in 2023, surpassing the previous record of USD 22.4 billion in 2022. Meanwhile, registered FDI in 2023 increased by 32% to USD 36.6 billion from USD 27.7 billion in 2022, nearly matching the record high of USD 38 billion in 2019.

These FDI figures indicate that foreign investors continue to view Vietnam as an important investment destination in the medium and long term, amid the ongoing restructuring of global supply chains. The increase in both disbursed and registered FDI will further boost domestic activities in the coming quarters, including construction and employment. This also reaffirms foreign businesses' confidence and commitment to Vietnam amid current trends of de-globalization, risk reduction, and supply chain shifts.

Regarding interest rates and exchange rates, UOB's report suggests that the recent depreciation of the VND against the stronger USD and rising inflation could make the State Bank of Vietnam cautious about policy rate changes. Noting that current growth may slow in the second half of 2024, UOB believes the State Bank of Vietnam will maintain the refinancing rate at its current level of 4.5%.

"With the European Central Bank leading the way by lowering rates in June and the US Federal Reserve possibly starting to ease its policy stance in the second half of the year, this could open opportunities for the State Bank of Vietnam to follow suit. Currently, instead of further rate cuts, the Government is focusing on non-interest measures to support the economy," UOB assessed.

Source: vietnambiz

Compiled by Vietnam Business Information