According to UOB's report released on November 2, Vietnam’s real GDP growth was stronger than expected in quarter three, surging 7.4 per cent on year compared to the median consensus view of 6.1 per cent and UOB's forecast of 5.7 per cent. This is the fastest pace since the third quarter of 2022 when activities had then rebounded sharply from the trough of the pandemic.

The latest figure extended the revised 7.09 per cent gain in 2Q24, resulting in a cumulative 6.82 per cent on year expansion in the first nine months of 2024. The surprise Q3 outcome reflected the resilience of the economy, despite the devastation from Typhoon Yagi.

While the primary sector was most affected by the typhoon, overall agricultural, forestry and fishery output managed to gain 2.6 per cent on year in Q3 (slower compared to 3.6 per cent in Q2). Manufacturing output accelerated further to 11.4 per cent on year from the 10.4 per cent gain in 2Q24. The services sector rose 7.5 per cent on year after the 7.1 per cent rise in 2Q24. Overall in Q3, the services sector was the main contributor to GDP growth with 3.24 percentage points (pp), followed by industrial and construction output with 3.37pp, accounting for 89 per cent of the 7.4 per cent headline figure.

This suggests that Vietnam’s growth trajectory remains on track. As of October, Vietnam’s exports rose 14.9 per cent on year, maintaining its double-digit momentum so far. For the full year 2024, UOB projects Vietnam’s exports to rise by 18 per cent, which would be the strongest year since 2021.

Imports gained 16.8 per cent on year in January to October, resulting in a trade surplus of $22.3 billion in the first 10 months to seal its position to be the second-largest trade surplus on record after the $28 billion in 2023.

Related to this, foreign direct investment (FDI) momentum extended further, with registered FDI inflows at $27.3 billion in first 10 months of 2024, 2 per cent on year higher than the same period in 2023. Actual FDI inflows amounted to $19.6 billion as of end-October, and is on track for the third straight year of record FDI inflows.

On the domestic front, the momentum for retail sales has largely held steady so far in 2024, with a gain of 7.1 per cent in October and an average of 8.5 per cent in the first 10 months, comparable to the 10.4 per cent increase in all of 2023.

This is partly supported by a 41 per cent surge in tourist inflows to 14.1 million visitors as of end-October. This is due to increases across top tourist sources including South Korea, China, Taiwan, the US and Japan. However, relative to the pre-COVID boom in 2019, arrivals data continue to pale in comparison and may need one to two more years to return to pre-pandemic levels.

"Taking into account the above factors, we maintain Vietnam’s full-year growth forecast at 6.4 per cent, which implies an outturn of 5.2 per cent on year in Q4," UOB reported. "For 2025, UOB anticipates an expansion pace of 6.6 per cent. The Vietnam parliament has pegged GDP growth at 6.5-7 per cent for 2024 and 6.5-7 per cent as well for 2025, while striving to hit the 7-7.5 per cent range," the report said.

"However, with the US poised for Trump 2.0, potential of global trade tensions and downside risks may soon emerge. One key risk to watch will be potential trade restrictions against Vietnam, as the US annual trade deficit with the country ballooned by more than 2.5x from $39.5 billion in 2018 to nearly $105 billion in 2023,"

Overall, US trade deficit with ASEAN has nearly doubled to $200 billion in 2023 from less than $100 billion in 2018 as global trade flows and supply chains shifted in response to restrictions implemented in Trump's first presidential term.

With economic growth staying robust in 2024 and into 2025, there is less urgency for the central bank to hurry into any easing. Inflation readings have stayed below the 4.5 per cent target since Jun 2023, thus relieving much of the pressures from the central bank.

"However, with the prospects of further trade tensions globally under Trump and the accompanying US dollar strength an emerging concern, the State Bank of Vietnam is expected to stay alert to downside pressures on the VND. As such, we look for the key refinancing rate to stay at the current level of 4.5 per cent," UOB said.