ANTD.VN - UOB Bank forecasts Vietnam's growth at 6.0% for 2024, close to the Vietnamese Government's official target of 6.0-6.5%.
Vietnam benefits from supply chain shifts
In a recently released report, UOB Bank said that Vietnam's economy ended 2023 with hopeful results.
Specifically, Vietnam's real GDP growth rate increased to 6.72% year-on-year in the fourth quarter of 2023 and reached 5.05% growth in 2023, despite a difficult year.
Vietnam's inflation rate is expected to remain stable at 3.25% year-on-year in 2023, meeting the official target, compared to 3.15% in 2022.
Notably, Vietnam’s consumer price index (CPI) is set to accelerate from mid-2023 to around 3.0%, albeit based on a much higher base price in 2022. This means that inflation is likely to remain a concern in the coming months, especially with a 6% minimum wage increase expected from July 2024, a slightly larger increase than the 5.88% increase in July 2022.
In the coming year, according to UOB, Vietnam's economy will still face many challenges and disadvantages due to uncertainties and risks arising from ongoing military conflicts elsewhere in the world, geopolitical disputes between major powers and a high interest rate environment.
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Vietnam's economic growth is forecast to be optimistic in 2024 |
Another factor to consider is the implementation of the global minimum tax (GMT) in Vietnam for multinational enterprises (MNEs), which will take effect from January 1, 2024. The Vietnamese government estimates that 122 foreign companies will be affected by this change, with an increase in annual tax revenue of VND14.6 trillion (US$601 million) for the state.
More importantly, various tax incentives such as preferential tax rates, tax exemptions, and many others for MNEs have helped reduce the corporate tax rate to 20%.
With the current change, foreign investors, especially MNEs, will need to factor in higher tax costs in their future business planning.
It is important to take measures to offset GMT, such as reducing costs and improving labor productivity, to maintain Vietnam's competitiveness as an investment destination.
However, at present, Vietnam's outlook is bolstered by a recovery in semiconductor demand, steady growth in China and the region, and supply chain shifts largely in favor of Vietnam and other ASEAN countries.
“We maintain our Vietnam growth forecast at 6.0% for 2024, within the official target of 6.0-6.5%. We expect inflationary pressures to continue to rise, with CPI forecast to continue rising to 3.7% in 2024, from 3.25% in 2023,” UOB analysts forecast.
Interest rates will remain stable
According to UOB experts, the State Bank of Vietnam (SBV) responded quickly in early 2023 to the economic downturn and challenges with rapid succession of interest rate cuts.
The last policy rate cut will be in June 2023, when the refinancing rate will be cut by a total of 150 basis points to 4.50%. However, with the pace of economic activity recovering and the outlook improving in 2024, the case for further rate cuts has diminished. Therefore, OUB believes that the SBV will maintain the refinancing rate at its current level of 4.50%.
Instead of continuing to lower interest rates, which would be constrained by the lower bound, the government has shifted its focus to non-interest rate measures to support the economy. One of these is an increased emphasis on getting credit to borrowers (i.e. quantitative measures).
Another sign is the recent amendment to the Law on Credit Institutions, which will come into effect from 1 July 2024. The amended law creates a framework for special loans from the SBV, including interest-free loans and unsecured loans, which can be targeted towards specific policy objectives to support key sectors and to deploy emergency liquidity operations when necessary, such as in cases of bank runs.
This reflects the Government's commitment and means to support critical sectors and respond to emergencies.
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