Domestic demand showed significant growth improvement. Real export growth remained robust, with an on-year increase of 17 per cent.

Minh Ngo, head of markets and country treasurer at Citi Vietnam

Vietnam’s growth recovery, which began late last year, has been fuelled by a surge in manufacturing exports and supported by increased capacity expansion from foreign direct investment (FDI). Despite a slower recovery in consumption, momentum is steadily building, with promising signs in the second quarter.

Looking forward, Citi has raised its 2024 GDP growth forecast from 6 per cent to 6.4 per cent, remaining optimistic within the range of 6-6.5 per cent growth. The impressive on-year GDP growth in the second quarter can also be attributed to favourable base effects, with Vietnam overcoming challenges faced in the same period last year.

“Building on the foundation of this solid recovery, we are confident in Vietnam’s ability to overcome obstacles and continue on a path of positive growth. Foreign-invested enterprises remain a crucial driver of economic growth, and Citi is dedicated to supporting investments in Vietnam and fostering the growth of our FDI corporate clients,” said Minh Ngo, head of markets and country treasurer at Citi Vietnam.

While inflation remained elevated, Citi economists remain optimistic about the limited potential for further increases. Despite high food inflation in June, this was offset by a decrease in fuel prices. Looking ahead, there may be adjustments in domestic electricity tariffs, but softer global growth is expected to lead to a decrease in oil prices in the second half of 2024 and into 2025, which should contribute to lower transport costs. Additionally, declining rice prices in neighbouring countries could reduce demand for Vietnam’s rice exports, leading to a decrease in domestic food inflation.

Overall, Citi economists do not foresee a sustained breach of the 4.5 per cent inflation target, despite a slight increase in core inflation to 2.6 per cent on-year. As domestic demand continues to recover, inflationary pressures could potentially rise, but are expected to be manageable.

Although there has been some upward pressure on the USD to VND exchange rate, it has stabilised following policy measures introduced by monetary authorities. Vietnam’s strong current account surplus (5 per cent of GDP) and net FDI inflows (3 per cent of GDP) in the first quarter have contributed to this stability.