UOB forecasts slight recovery of VND

UOB Bank has just forecasted that the recovery of manufacturing and export activities will be factors that help VND recover slightly in 2024.

Management agencies are making efforts to improve the business environment, thereby increasing businesses' access to capital so that banks can boost lending to the economy - Photo: Le Toan

The USD/VND pair traded to a new high of VND24,700/USD at the end of February 2024 along with a significant strengthening of the USD against Asian currencies.

UOB economists said that VND often has the same recovery trend as CNY as they have seen the world's second largest economy's currency continue to recover.

At the same time, the weakening of the USD ahead of the US Federal Reserve's interest rate cut in June will bring a slight recovery to the VND, UOB said.

UOB believes that VND is likely to recover slightly, forecasting USD/VND to be at 24,400 VND/USD in the second quarter of this year, then falling to 24,200 VND/USD in the third quarter and to 24,000 in the fourth quarter of 2024.

Accordingly, this Singaporean bank forecasts that in the medium term USD/VND will be at 23,800 VND/USD.

The stability of VND is also considered to be due to the fact that Vietnam's economic recovery rate in the first two months of 2024 is more positive than the same period in 2023.

According to the latest data released by the General Statistics Office (GSO), Vietnam's exports and industrial production in February decreased sharply, with exports decreasing by 5% year-on-year and industrial production decreasing by 6.8% year-on-year in February, compared to increases of 42% and 18.3% respectively in January.

The sharp decline was largely due to the Lunar New Year holiday falling in February this year. For a more precise comparison, aggregate data from January to February showed exports rising 17.6% year-on-year in 2023, while industrial production rose 5.7% compared to an average of -2.2% in the January-February period of 2023.

Notably, in January and February 2024, the PMI purchasing managers index increased above 50 points after the last 4 months of last year, the index was below 50 and in January and February last year, it was at an average of 49.3 points.

These data suggest that the overall momentum in manufacturing and external trade is showing positive signs and we expect this pace to be sustained, especially in the second half of 2024 as the recovery in the semiconductor sector consolidates and global central banks begin to operate more accommodative interest rate policies.

While risks from external events continue to weigh on the global economic outlook (including conflicts in Eastern Europe and the Middle East), Vietnam’s outlook is bolstered by a recovery in the semiconductor industry, steady growth in China and the region, and supply chain shifts in favor of Vietnam and ASEAN.

Accordingly, UOB forecasts that Vietnam's GDP growth in the first quarter of 2024 will reach 5.5% compared to the 3.3% increase in the same period in 2023. The bank also explained that this GDP growth has not reached the expectations of Vietnamese policymakers because February this year falls during Vietnam's traditional Tet holiday.

However, overall, UOB economists maintain their forecast for Vietnam's growth at 6.0% for 2024, within the official target of 6.0-6.5%.

“With economic activity recovering, the possibility of further rate cuts has diminished. Therefore, we believe that the SBV will keep the refinancing rate at the current level of 4.50%.

“We expect inflationary pressures to continue to rise, with headline CPI forecast to rise to 3.8% in 2024, from 3.25% in 2023,” UOB said in its economic report.

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