Vietnam’s GDP growth in the third quarter of 2023 is forecast to reach 5.6 per cent and 7.6 per cent in the fourth quarter, according to the latest quarterly global outlook report released by the United Overseas Bank (UOB).

The bank maintained its economic growth forecast for Vietnam of 5.2 per cent for 2023 and 6 per cent for 2024.

After starting off the year at a sluggish pace, with real GDP growth in the first quarter decelerating to 3.28 per cent year-on-year, from 5.92 per cent in the fourth quarter of 2022, growth momentum in Vietnam has remained lethargic, largely due to weak external demand coupled with an underperforming manufacturing sector, according to the report.

As a result, economic growth in the second quarter of 2023 expanded just 4.14 per cent year-on-year, for a cumulative growth rate of 3.72 per cent year-on-year in the first half of 2023, well below the 6.46 per cent in the first half of 2022 as well as the official growth target of 6.5 per cent.

The bank forecast that the outlook for the remainder of the year is likely to be challenging, as the latest data does not inspire much confidence. Vietnam’s Purchasing Managers’ Index (PMI) returned to an above-50 reading in August after five straight months of contraction, which is below 50, while the lowest reading since September 2021, of 45.3 in May, made it the worst performer in Asia at that time. Nonetheless, Vietnam’s PMI has underperformed the overall ASEAN PMI for the 12th straight month.

Vietnam’s exports have contracted in nine out of the last ten months, by 8.5 per cent year-on-year in August, while imports saw ten straight losses, down 5.8 per cent year-on-year in August.

Poor external demand is reflected in Vietnam’s exports to the US (its largest market and accounting for 28 per cent of total exports), which has declined in nine of the past ten months (down 9.4 per cent in August).

In contrast to the externally driven sector, domestic demand is relatively more encouraging. Retail sales continued to perform well over the past year, with total retail trade reporting a 10 per cent year-on-year gain in August, supported by double-digit increases in travel related spending and activities.

Visitor arrivals have accelerated through the year, with overall inbound tourists totaling more than 7.8 million in August, which means that by end-2023, arrivals could recover to at least two-thirds of the levels recorded in pre-pandemic 2019. Nonetheless, with the services sector offsetting only part of the weaknesses in exports and manufacturing, data released so far suggests that real GDP growth in the third quarter of 2023 is likely to underwhelm.

“We maintain our full year growth forecasts of 5.2 per cent for 2023 and 6.0 per cent for 2024, penciling in a projected 5.6 per cent year-on-year growth in the third quarter of 2023 and 7.6 per cent in the fourth quarter,” the report stated “This implies about 6.6 per cent growth in the second quarter of 2023.”

“In contrast, to meet the official forecast of 6.5 per cent for 2023 and with growth in the first half at just 3.72 per cent, the pace of expansion in the second half would have to average more than 9.2 per cent year-on-year, which is a huge hurdle in the current circumstances.”

UOB has recommended that Vietnam watch external risk factors, including the Russia-Ukraine conflict and its impact on energy, food, and commodity prices, global supply chain shifts and disruptions, and the pace of China’s economic recovery.