Vietnam’s GDP growth in the third quarter (Q3) accelerated to 7.4 per cent on-year from 7.1 per cent in Q2, supported by both manufacturing and services.

This figure is stronger than expected and came even as El Nino-related low base effects in the second quarter dissipated.

Consumption and investment growth acceleration continued, following the export-led recovery which began in the second half of 2023.

Ngo Thi Hong Minh, head of markets and country treasurer for Citi Vietnam

Within Q3, Citi economists suspect the strongest growth momentum probably occurred in July and August.

Under City economists’ observation, the recent weather events likely dampened momentum in September which perhaps could continue into October.

September monthly data for retail sales softened, as did the manufacturing Purchasing Manager’s Index (PMI) and visitor arrivals.

Food inflation increased slightly in September, of which logistical disruptions may have played a role, but this was more than offset by declining petrol prices.

With GDP growth up in the first three quarters of 2024 at 6.7 per cent on-year, Vietnam GDP growth of 2024 will probably be slightly above 6.5 per cent, stronger than Citi’s previous forecast of 6.3 per cent.

“We believe that the aftermath of typhoon Yagi could affect GDP in the short-term but underlying domestic demand recovery should continue. At this juncture, we think that Citi’s 2024 GDP growth forecast range of 6–6.5 per cent remains valid,” said Ngo Thi Hong Minh, head of markets and country treasurer for Citi Vietnam.

On 2025 fundamentals, Citi is mindful of cyclical uncertainties on exports but remains optimistic on gradual domestic demand recovery.

Further ahead, given still significant momentum in FDI and export capacity expansion, Vietnam will likely continue increasing its share in trade over the medium term.

However, export growth could soften in 2025 in light of apparent cyclical headwinds as signs of a cooling global PC market have emerged, possibly impacting PC exports which recently underpinned Vietnam’s electronics exports.

The recent recovery of textile exports also seems shaky, given the US labour market softening trend.

Finally, Citi remains watchful of the upcoming US election result, which could shape US trade policies. That said, the bank’s economists think the domestic demand side of the economy is well cushioned.

As the US lowers interest rates, broadly easing forex market pressures should take upward pressure off domestic short-term rates. Together with structural reforms and inventory destocking, this should support a continued recovery of the real estate market in 2025.

Balance of payments data provided more colour on possible sources of VND pressure in Q2. Vietnam’s current account surplus and net FDI combined were still strong, at around 8 per cent of GDP.

Further ahead into 2025, Citi economists generally see reduced pressure on the VND versus USD this year as the US Federal Reserve rate continues its downward trend.