Illustrative photo (Photo: VNA)Ho Chi Minh City (VNA) –The United Overseas Bank (UOB) has maintained its economicgrowth forecastfor Vietnam at 5.2% for 2023 and 6% for 2024 while forecasting that Vietnamwill continue to cut regulatory interest rates in the remaining months of this year to balanceeconomic growth and inflation pressure.
Inthe bank’s latest economic growth, Vietnam’s economic growth rate will reach5.6% in the third quarter and 7.6% in the fourth quarter, which implies agrowth rate of 6.6% in the second half of this year.
Vietnamset a growth target of 6.5% for 2023 but in the first half of this year, itsgrowth reached only 3.72%. This means to get the target, the country’s economicgrowth in the second half must be over 9.2% on average, which is a huge hurdlein the current circumstances.
Accordingto UOB, the outlook for the remaining months of the year is likely to bechallenging as the latest data releases do not inspire much confidence.Vietnam’s purchasing manager’s index (PMI) returned to an above-50 reading in August2023 after five straight months of contraction. Nonetheless, Vietnam’s PMI has been underperforming theoverall ASEAN PMI for the 12th straight month.
Vietnam’sexports have contracted in nine out of the last ten months while imports sawten straight losses. Poor external demand is reflected in Vietnam’s exports tothe US which hasdeclined in nine out of the past ten months.
Incontrast to the externally driven sector, domestic demand is relatively moreencouraging. Retail sales continued to perform well over the past year, withtotal retail trade reporting a 10% year-over-year gain in August, supported bydouble-digit increases in travel-related spending and activities. Visitorarrivals have accelerated through the year, with overall inbound tourists ofmore than 7.8 million in August, which means that by end-2023, arrivals couldrecover to at least two-thirds of the levels recorded in 2019.
Nonetheless,with the services sector offsetting only part of the weaknesses in exports andmanufacturing sectors, data released so far suggest that real GDP growth in thethird quarter is likely to underwhelm.
Accordingto the bank, on the inflation front, both the headline and core measures ofVietnam’s consumer price index (CPI) have trended below the official target of4.5%. However, as August saw a year-over-year increase of 2.96%, the 2-monthrebound in the headline CPI after a 6-month downtrend suggests that the pricepressures remain a concern, especially with the recent spikes in crude oilprices.
As of August, Vietnam’s headline inflation came in around 3.1%year-over-year, higher than 2.6% in the same period in 2022. For the full year,the bank sees upside risks to Vietnam’s inflation trajectory.
Giventhe subpar economic performance, the State Bank of Vietnam (SBV) had respondedswiftly, by cutting its refinancing rate by a cumulative 150 basic points byJune 2023, to 4.50%, according to the bank.
UOBsaid that it sees prospects for another 100 basic points rate cut to 3.50%, thetiming has been shifted out to the last quarter of this year instead of thethird quarter to balance between growth and inflation risks./.
