ANTD.VN - UOB said that it seems the recent sell-off in the dong has ended and the VND could follow a recovery trend, but the gains may be limited due to a modest economic recovery in 2024.
Vietnam’s real GDP growth accelerated to 5.33% year-on-year in the third quarter of 2023, from 4.14% year-on-year in the second quarter, supported by improvements in trade, manufacturing and domestic consumption, after a difficult first half of 2023, according to a recent report by UOB Bank.
Data released for the October-November period once again confirmed that economic activity has stabilized and in some areas improved markedly compared to the first half of the year.
Retail sales of goods and services rose 10.1% year-on-year in November from 7.0% in October, the fastest increase since May.
Industrial production increased 5.8% year-on-year in November, thanks to a 6.3% increase in manufacturing output, bringing the total year-to-date growth in industrial production to 1.0%.
Year-to-date indices for both industrial production and manufacturing have returned to positive territory since September, after hovering in negative territory at the start of 2023.
Manufacturing output has been accelerating steadily since recording a negative reading in May, suggesting the industry's growth momentum is likely to last until 2024.
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VND is on a recovery trend |
According to UOB, interest rate cuts from the central bank (SBV) have helped reduce business costs, while the Government has introduced many policies to support businesses.
Vietnam's real estate market is showing some signs of stability and recovery, with reports showing that many developers have resumed sales activities and launched new projects.
Despite stronger growth in Q3, headwinds from the first half of the year are likely to limit full-year growth. “We expect the momentum from Q3/2023 to continue into the final quarter of the year, especially with more domestic support policies. We maintain our full-year growth forecast for Vietnam at 5.0%, assuming real GDP growth in Q4/2023 picks up to 7.0% y-o-y,” UOB forecast.
Regarding monetary policy, according to UOB's assessment, the SBV responded quickly to the economic downturn earlier this year by quickly cutting interest rates.
The last policy rate cut in June 2023 lowered the cumulative refinancing rate by 150 basis points to 4.50%.
However, with the pace of economic activity improving and inflation falling below target, the likelihood of further rate cuts has diminished.
In fact, the government has shifted its focus to non-interest-rate measures to support the economy. Prime Minister Pham Minh Chinh has asked the SBV to ensure sufficient credit supply for the rest of this year, as the credit growth target of 14%-15% this year may be a few percentage points lower.
“Therefore, we believe the SBV will maintain the refinancing rate at its current level of 4.50%, withdrawing our previous forecast of a 100 basis point cut,” UOB’s report said.
On the exchange rate front, UOB said that like other Asian currencies, the recent sell-off in the dong appears to be over. The USD/VND exchange rate fell in October after the Fed signaled that its rate-hike cycle could end.
“While the VND could follow the broader Asia-wide FX recovery trend, gains could be limited by a modest economic recovery in 2024.
Overall, our updated USD/VND forecast is 24,000 in 1Q24, 23,800 in 2Q24, 23,600 in 3Q24 and 23,500 in 4Q24” – UOB forecast.
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