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Data released by the General Statistics Office (GSO) on September 29 showed Vietnam's GDP growth pace extended further in Q3, up from 4.14% year-on-year in Q2.
This was underpinned by improvements in trade performance and manufacturing sector output, as well as domestic activities. The outcome came close to UOB’s expectations (5.6%) and above a Bloomberg poll of 5%.
Underlying data has shown some improvement in the third quarter compared to Q2, although the performance was far below that of the same period last year.
By sector, manufacturing output regained its footing with a 5.6% YoY gain in Q3 after struggling near the zero mark in the prior two quarters, while services sector output (43% share of GDP) rose 6.2% YoY, about the same as in Q2.
Data released for September showed some encouraging signs that activities may have turned around as performances improved on a monthly basis.
Exports expanded in September after six consecutive months of decline, with a reading of 4.6% year over year.
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Vietnam's GDP growth by quarter. Graphics by UOB |
Imports also showed a similar trend, gaining 2.6% YoY in September after 10 straight months of decline.
In response, industrial output rose 5.1% YoY in September, its best performance since November 2022, as the manufacturing sector recorded its fourth consecutive month of year-on-year increases in output.
This development is also reflected in the purchasing manager index (PMI) data, where Vietnam’s manufacturing PMI recorded its first expansion (above 50) in August at 50.5 after struggling in the contraction zone (below 50) in the prior 5 months.
One reason that conditions are likely to improve further is the continued inflow of foreign investment into Vietnam.
Despite a backdrop of weak growth prospects and poor export performances much of the year, foreign enterprises continued to commit to the country in the current wave of de-globalization, de-risking, and supply chain shifts.
Vietnam’s realized (or disbursed) foreign direct investment (FDI) rose for the fourth straight month in September with a 2.2% YoY YTD gain at US$15.9 billion, compared to the 1.3% YoY increase in August YTD and the 17.2% rise in the January-Sep period in 2022.
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Disbursed foreign direct investment flows into Vietnam. Graphics by UOB |
If the run rate continues at the same pace, full-year inflows of FDI are likely to match the value of $19.7 billion in 2021, which is a considerable achievement considering the current circumstances that are dominated by uncertainty, inflation pressures, and weakened confidence.
Pledged FDI gained 7.7% year-on-year in September at $20.2 billion, exceeding the $18.8 billion recorded in the same period in 2022.
Singapore was the biggest source of registered FDI at $4 billion, followed by China ($2.9 billion).
The manufacturing sector remained the top destination, attracting more than $14 billion YTD, a gain of 15.5% YoY.
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Graphics by UOB |
In the domestic arena, consumer spending seemed to have regained its momentum, with overall retail trade expanding 9.4% year on year in September after hovering below 7% in the prior 3 months and for its best month since April.
Retail sales gained 7.4% year over year in September, the biggest gain since April, while accommodation and services trade output surged 34.7% in September after moving around the 5-10% range in the prior 4 months, suggesting that tourism activities are picking up speed.
In the first nine months of 2023, Vietnam’s economy expanded by 4.24% year on year, which is an improvement compared to 3.72% in the first half of 2023, but only at half of the pace of 8.85% YoY in the same period in 2022.
This means that the official growth target of 6.5% is increasingly out of reach. To hit the official target, Vietnam’s Q4 growth rate will need to be at least 12%, which is unlikely in the current environment without sharp improvements in the underlying demand.
Despite firmer growth in Q3, the drag from the first half of the year remains significant.
As such, UOB is adjusting lower Vietnam’s full year growth forecast to 5% (from 5.2% previously), with the assumption of further acceleration of real GDP growth in this year's last quarter at 7% YoY, compared to the prior forecast of 7.6%.
This would still require that activities and orders be picked up quickly in the coming months.
Traditionally, Q4 is the best-performing quarter in any given year in Vietnam, though the base effect will play a disproportionately large role in 2023 due to the exceptionally strong year in 2022.
With that in mind, UOB planned to trim further its forecasts with 3/4 of the year already passed. It maintains the 2024 projection at 6%.
In view of the subpar economic performance, the State Bank of Vietnam (SBV) responded swiftly by cutting its refinancing rate by a cumulative 150 basis points by June 2023 to 4.5%.
While we still see prospects for another 100-bps rate cut (to 3.5%), the timing has been shifted to this year's last quarter instead, with greater uncertainty as the central bank balances growth and inflation risks.
Inflation rates have turned higher in recent months, and the risks are that upward pressures on consumer prices could intensify ahead given the recent increases in food and energy prices as a result of output cuts by key oil producers, ongoing conflict between Russia and Ukraine, as well as climate and weather changes.
According to UOB, it is keeping the forecasts of Vietnam’s CPI inflation at 3.9% for 2023; the latest reading of 3.7% YoY for September is well above this year’s low of 2% (June 2023) and edging closer to the official target of 4.5%.
As such, UOB's call for a further SBV rate cut in Q4 remains shrouded in uncertainty.
