As Vietnam navigates through a period of economic adjustment, insights from Standard Chartered Bank present a mixed but cautiously optimistic scenario.

The bank's latest macroeconomic report, which was released on October 24, has downgraded Vietnam's 2023 GDP growth by 0.4 per cent from the earlier estimate of 5.4 per cent.

This adjustment reflects the lower-than-expected performance so far this year and a more subdued global outlook. To align with these revised figures, a robust 7 per cent growth rate in the fourth quarter of this year is hoped for, though achieving this remains a significant challenge.

Despite this, Standard Chartered maintains a strong GDP growth forecast for 2024, pegged at 6.7 per cent. This projection is split into 6.2 per cent growth over the first half of the year, escalating to 6.9 per cent in the latter half.

Recent macro indicators reveal some positive signs. Trade data, while not yet heralding a definitive manufacturing rebound, suggests a cautious improvement. The domestic market is also showing more robust recovery signals, particularly in terms of retail sales.

Furthermore, sectors such as construction have demonstrated impressive growth over the year-to-date, with manufacturing also beginning to pick up pace. The external outlook seems encouraging as well, with forecasts indicating the current account surplus could rise to 3.5 per cent of GDP in 2024, up from 2 per cent this year.

However, there has been an upward adjustment in the inflation outlook for 2023, now revised to 3.4 per cent on-year from the previously projected 2.8 per cent.

Fourth-quarter inflation is expected to spike at 4.3 per cent. This upward trend is likely to continue into the next year, potentially driving search-for-yield behaviour and amplifying the risk of financial instability. Notable inflationary pressures are emerging from sectors such as education, housing, food, and transport.

Tim Leelahapan, economist for Thailand and Vietnam at Standard Chartered said, “The medium-term outlook remains promising given Vietnam’s economic openness and stability. To reinvigorate foreign direct investment inflows, Vietnam needs to resume rapid GDP growth and develop its infrastructure.”

In terms of monetary policy, the Standard Chartered report anticipates that the State Bank of Vietnam will refrain from further rate cuts.

It projects a 50 basis point hike in the fourth quarter of 2024 to mitigate looming price pressure, followed by a hold in 2025. The report also notes an acceleration in capital outflows in recent quarters, prompting a revision of the USD-VND forecasts to 24,500 by the end of 2023 and 23,500 by the end of 2024. Influenced partly by growing pessimism around the Chinese yuan, this shift reflects the indirect impact on the VND.

“The property market may require further liquidity support, as measures so far appear to have only reduced the short-term repayment pressure. Low interest rates, new project approvals, and a pick-up in buyer sentiment could help the market,” added Leelahaphan.