The Singapore-based bank UOB has cut its full-year GDP growth forecast for Vietnam to 5 per cent from the earlier 5.2 per cent, according to its recently-released report.

Despite firmer growth in the third quarter, the drag from the first half of the year remains significant, it said. “As such, we are adjusting down Vietnam’s full-year growth forecast to 5 per cent (from 5.2 per cent previously), with an assumption of further acceleration of real GDP growth in the fourth quarter of 7 per cent year-on-year (vs. the prior forecast of 7.6 per cent),” it wrote.

Data released by the General Statistics Office (GSO) on September 29 shows that Vietnam’s real GDP growth extended further, to 5.33 per cent year-on-year in the third quarter from 4.14 per cent in the second quarter. This was underpinned by improvements in trade performance and manufacturing sector output as well domestic activities.

Underlying data reveals some improvement in the third quarter compared to the second quarter, though performance was far below that of the same period of 2022. By sector, manufacturing output regained its footing, with a 5.6 per cent year-on-year gain in the third quarter after struggling near the zero mark in the prior two quarters, while services output, which has a 43 per cent share of GDP, rose 6.2 per cent year-on-year, or about the same as in the second quarter.

Data released for September shows some encouraging signs that activities may have turned around as performances improved on a monthly basis. Exports expanded in September after six consecutive months of decline, with a reading of 4.6 per cent year-on-year. Imports showed a similar trend, gaining 2.6 per cent year-on-year in September after ten straight months of decline.

Industrial output rose 5.1 per cent year-on-year in September, its best performance since November 2022, as manufacturing recorded its fourth consecutive month of year-on-year increases in output. This development is also reflected in data for the Purchasing Managers’ Index (PMI), where Vietnam’s manufacturing PMI recorded its first expansion (above 50) in August, at 50.5, after struggling in the contraction zone (below 50) in the prior five months.

One reason that conditions are likely to improve further is the continued inflow of FDI into Vietnam. Despite a backdrop of weak growth prospects and poor export performance for much of the year, foreign enterprises continued to commit to the country in the current wave of de-globalization, de-risking, and supply chains shifts.

Vietnam’s FDI disbursement rose for the fourth straight month in September, with a 2.2 per cent year-on-year increase to $15.9 billion.

If the rate continues at the same pace, full-year FDI inflows are likely to match the $19.7 billion reached in 2021, which would be a considerable achievement considering that current circumstances are dominated by uncertainty, inflationary pressure, and weakened confidence.

Registered FDI rose 7.7 per cent year-on-year in September, to $20.2 billion.

In the first nine months of the year, Vietnam’s economy expanded 4.24 per cent year-on-year, which is an improvement against the 3.72 per cent posted in the first half, but was only half the pace of the 8.85 per cent year-on-year recorded in the same period of 2022.

Traditionally, the fourth quarter is the best-performing quarter in any given year in Vietnam, though the base effect will play a disproportionately large role in 2023 due to the exceptionally strong 2022.

“With that in mind, we needed to trim our forecasts further with three-quarters of the year already passed,” the report stated. “We maintain our 2024 projection at 6.0 per cent.”