Despite a rise in the revenue from retail of goods and services in the first half of this year, Vietnam’s GDP growth is still low. (Photo: VietnamPlus) Hanoi (VNA) – The United Overseas Bank (UOB)’s Global Economics & Market Research Unit has lowered its 2023 economic growth forecast for Vietnam from 6% to 5.2% amid many challenges ahead.
Weak external demand
In the Q2/2023 economic growth report of Vietnam, the bank said that weak export activities with their possible impacts on domestic demand, the US Federal Reserve (Fed)’s halting interest rate hikes in June, and possible further rate cut in 2024, as well as confidence in the stable exchange rate despite previous interest rate cuts drive the prospect of Vietnam's next rate cut this year.
As a result, UOB predicted a further 100 basis points reduction in interest rates in the third quarter of 2023 to 3.5% for the refinancing rate before the State Bank of Vietnam (SBV) pauses to assess the impacts.
Based on statistics from the General Statistics Office (GSO), the bank’s experts said Vietnam's real GDP growth rate in the second quarter of 2023 increased to 4.14% over the same period of last year, from 3.28% in the first quarter of 2023. This result exceeded the general forecast of 3.8% but was lower than the expected rate of 5.9%.
The main driver of the continued dismal growth results was a drop in manufacturing activity and external demand. Overall, in the first half of 2023, Vietnam's economy grew by 3.72% year-on-year, much lower than the 6.46% pace in the first half of 2022 as well as the official growth target of 6.5%.
Revenue from retail of services sees an increase in the first half of 2023 (Photo: VietnamPlus) Regarding inflation, Vietnam's consumer price index dropped sharply to 2.4% in the second quarter of 2023 from 4.18% in the first quarter of 2023, lower than the Government's target of 4.5%. Core inflation excluding prices of food, energy, and other public services fell to 4.48% in the second quarter from the 5.01% in the first quarter of 2023, creating an opportunity for the SBV to loosen monetary policy further in the first half of the year.
SBV likely to further cut interest rates
According to UOB, with the growth rate in the first six months of 2023 much lower than the official growth target for the year, it will be difficult to keep up with the 6% forecast that the bank gave before. As a result, UOB's Global Market and Economic Research Unit has revised its GDP growth forecast for Vietnam in 2023 to 5.2%, from the previous forecast of 6%.
There is still room for the State Bank of Vietnam to reduce interest rates in the third quarter (Photo: VietnamPlus) In view of the soft economic momentum, the SBV had been more aggressive than anticipated, cutting its refinancing rate an accumulative 150 basis points by June to 4.5%.
UOB had expected cuts of 100 based points in the first half of 2023. With these actions, the SBV has shifted towards a more accommodative stance, and further rate easing will be likely in the third quarter.
Weak exports that could potentially spill over into domestic demand, the US Fed’s rate pause in June, possible rate reductions in 2024, and confidence from a steady VND exchange rate despite the previous rounds of rate reductions have bolstered the prospect of further rate cuts in Vietnam this year.
"As such, we factor in another 100 basis point rate reduction in the third quarter of 2023 before the SBV pauses to assess the effects," UOB noted in its report./.
