Vietnam’s regulatory interest rates to further down in fourth quarter: UOB
The United Overseas Bank (UOB) has maintained its economic growth forecast for Vietnam at 5.2 per cent for 2023 and 6 per cent for 2024.
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In the bank’s latest economic growth, Vietnam’s economic growth rate will reach 5.6 per cent in the third quarter and 7.6 per cent in the fourth quarter, which implies a growth rate of 6.6 per cent in the second half of this year.
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| Vietnam’s regulatory interest rates to further down in the fourth quarter. |
Vietnam set a growth target of 6.5 per cent for 2023 but in the first half of this year, its growth reached only 3.72 per cent. This means to get the target, the country’s economic growth in the second half must be over 9.2 per cent on average, which is a huge hurdle in the current circumstances.
According to UOB, the outlook for the remaining months of the year is likely to be challenging as the latest data releases do not inspire much confidence. Vietnam’s purchasing manager’s index (PMI) returned to an above-50 reading in August 2023 after five straight months of contraction. Nonetheless, Vietnam’s PMI has been underperforming the overall ASEAN PMI for the 12th straight month.
Vietnam’s exports have contracted in nine out of the last ten months while imports saw ten straight losses. Poor external demand is reflected in Vietnam’s exports to the US which have declined in nine out of the past ten months.
In contrast to the externally driven sector, domestic demand is relatively more encouraging. Retail sales continued to perform well over the past year, with total retail trade reporting a 10 per cent year-over-year gain in August, supported by double-digit increases in travel-related spending and activities.
Visitor arrivals have accelerated through the year, with overall inbound tourists of more than 7.8 million in August, which means that by end-2023, arrivals could recover to at least two-thirds of the levels recorded in 2019.
Nonetheless, with the services sector offsetting only part of the weaknesses in exports and manufacturing sectors, data released so far suggest that real GDP growth in the third quarter is likely to underwhelm.
According to the bank, on the inflation front, both the headline and core measures of Vietnam’s consumer price index (CPI) have trended below the official target of 4.5 per cent. However, as August saw a year-over-year increase of 2.96 per cent, the 2-month rebound in the headline CPI after a 6-month downtrend suggests that the price pressures remain a concern, especially with the recent spikes in crude oil prices.
As of August, Vietnam’s headline inflation came in around 3.1 per cent year-over-year, higher than 2 per cent in the same period in 2022. For the full year, the bank sees upside risks to Vietnam’s inflation trajectory.
Given the subpar economic performance, the State Bank of Vietnam (SBV) responded swiftly, by cutting its refinancing rate by a cumulative 150 basic points by June 2023, to 4.50 per cent, according to the bank.
UOB said that it sees prospects for another 100 basic points rate cut to 3.50 per cent, the timing has been shifted out to the last quarter of this year instead of the third quarter to balance between growth and inflation risks.
(Source: VNA)
