In its latest report,  Singapore-based United Overseas Bank Limited (UOB) assessed that Vietnam began 2024 with strong growth, evidenced by a 5.66 per cent increase in Q1. The inflow of FDI indicates that investors continue to have confidence in the country's stable political environment and the competitiveness of its economy.

According to the bank, this extends the growth rate of 6.72 per cent in Q4 2023 and 5.33 per cent in Q3 2023, surpassing the 3.41 per cent growth in the first quarter of 2023 and marking the strongest Q1 growth since 2020.

Momentum to remain in the second half of 2024

UOB analysts attribute Vietnam's strong growth in the first quarter to the recovery in both the manufacturing and service sectors, as well as the acceleration of external trade activities at the fastest pace since 2021, reversing the decline experienced for most of 2023.

“The latest data released by the General Statistics Office continues to affirm the positive outlook on Vietnam's growth trajectory. The Purchasing Managers' Index (PMI) for the manufacturing sector increased for the second consecutive month in May, reaching 50.3 and marking the fourth positive increase in the first five months of the year”, UOB experts stated in the report.

In addition, industrial production increased by 8.9 per cent year-on-year in May, marking the third consecutive month of growth in 2024. Concurrently, goods exports recorded the third month of double-digit growth, rising by 15.8 per cent year-on-year in May from 10.6 per cent in April, while imports surged by 29.9 per cent year-on-year from 19.9 per cent in April.

From the beginning of the year to May 2024, exports increased by 16 per cent year-on-year, and imports grew by 18.6 per cent, compared to a decline in the same period in 2023. The trade surplus reached $7.8 billion year-to-date in May, lower than the $9.5 billion surplus in the same period last year.

Accordig to data from UOB,  the realized foreign direct investment (FDI) capital since the beginning 2024 have risen by 7.8 per cent year-on-year to $8.3 billion by May, the  fastest five-month growth rate since 2018. 

“FDI investment data in Vietnam is also quite optimistic, indicating that investors continue to have confidence in Vietnam's political environment and competitiveness,” a UOB expert noted.

Data from the General Statistics Office of Vietnam shows that total retail sales of goods and consumer service revenues increased by 8.7 per cent year-on-year in May, supported by the restaurant and accommodation services sector (15.1 per cent year-on-year) as well as tourism (45.1 per cent year-on-year).

The Singaporean bank also stated that while external headwinds continue to weigh on economic prospects, including conflicts in the eastern Europe and the Middle East, Vietnam’s economy is bolstered by the recovery in the semiconductor cycle, stable growth in China and the region, as well as the ongoing supply chain shifts. 

“Based on data released to-date, we expect GDP growth to pick up to 6 per cent in Q2 of 2024, extending the 5.66 per cent gain in the first quarter. We maintain our growth forecast for Vietnam at 6.0 per cent for 2024”, the bank wrote in its report.

SBV to keep policy rates steady through 2024

Assessing the prospect of the local currency, UOB believes that although domestic fundamentals are improving, the VND is still affected by the strength of the USD broadly in the second quarter and traded at a new record low of nearly 25,500 VND/USD.

The State Bank of Vietnam (SBV) stated that it has intervened in the foreign exchange market, which helps control exchange rate fluctuations. However, the VND could recover in the second half of 2024 due to reduced external pressure from the USD ahead of the anticipated interest rate cut by the Federal Reserve (Fed) in September.

Additionally, the VND could benefit from the further recovery of the Chinese yuan in the second half of the year as the Chinese economy shows clearer signs of stabilization.

“The exchange rate is forecast to be anchored at 25,200 VND/USD in the upcoming third quarter and 25,000 VND/USD in the final quarter of this year”, the report stated.