Source: UOB

The sharp rebound in Q3 2022 GDP has provided a strong foundation in the first nine months of the year, laying the ground for a strong performance for 2022.

"With 8.8 per cent on-year gain in the bag, we are raising further the full-year growth forecast for Vietnam to 8.2 per cent (vs. our previous call of 7 per cent)," said a UOB expert.

However, more concerning is the outlook for 2023, as aggressive policy tightening from major central banks is expected to weigh on the US and Europe, the two major export markets that account for 41 per cent of Vietnam’s exports.

"Indeed, in our latest Quarterly Global Outlook, we expect a recession for the major economies in 2023 although it is uncertain at this point the extent and duration of the downturn. We are keeping our 2023 GDP growth projection for Vietnam at 6.6 per cent, with the anticipation of slowing demand from the key markets," emphasised UOB.

As for monetary policy, the State Bank of Vietnam (SBV) surprised with an interest rate tightening on September 22, thereby signalling the start of its policy normalisation cycle after a hawkish US Fed raised its benchmark interest rate by 75bps for the third straight time that morning. SBV hiked two of its policy rates by 100bps each, lifting the refinancing rate from the historic low of 4 per cent to 5 per cent.

"Against the backdrop of an aggressive Fed policy stance, a strong US dollar, a weakened VND, and an inflation rate poised to come close to the SBV’s target, we see room for the SBV to increase a further 100bps to the refinancing rate in a paced manner over the next two quarters. This would bring the refinancing rate to 5.5 per cent by end-2022 and then to 6 per cent by the end of the first quarter of 2023," the expert added.

On the foreign currency front, the VND has not been spared from the Asia-wide weakness inflicted by the aggressive repricing in Fed rate hike expectations and rising concerns of a China slowdown.

"As such, VND is still likely to be biased weaker in the coming quarters although losses may be cushioned by a strong domestic growth outlook," said UOB.