Vietnam's economic growth rate projected to reach 6% in 2024: UOB

Suan Teck Kin, UOB's Head of Research. Photo by VnExpress/Hong Thao

How do you assess Vietnam's GDP growth in 2023 at 5.05%?

Like a number of countries in the region, 2023 was a difficult year as the U.S. Fed, along with other major central banks, continued to raise interest rates, weighing on external demand and business activities, which were already affected by the ongoing Russia-Ukraine conflict and shifts in global production.

Vietnam's trade dependence (measured by total trade to GDP) is the second-largest in ASEAN at about 186% of GDP in 2021, according to World Bank data, therefore affected the most by weak external demand.

Our team revised Vietnam's growth forecast in July to 5.2% from a 6% forecast as trade data continued to stay weak. While 5.05% was slower than the official projection of 6–6.5%, it's an achievement given the circumstances, as the SBV also went into action by cutting rates to provide support to domestic businesses and consumers.

What is your prediction of Vietnam's GDP growth in 2024?

For 2024, we anticipate business activities to improve and external trade to improve further, especially in the second half of 2024, assuming that the U.S. Fed will start to lower interest rates by June.

Meanwhile, data from the semiconductor industry is pointing to improvements in sales, which will benefit Vietnam's exporters in the tech sector.

It should be noted that FDI inflows to Vietnam broke records at US$23.2 billion in 2023, which suggests that companies continue to see value and opportunities in the country and will lay the foundation for more business activities in the subsequent years.

The team at UOB is projecting 6% growth for Vietnam in 2024 as the economy recovers further towards the pre-pandemic pace.

Suan Teck Kin predicts that the U.S. Fed will start to lower interest rates by June, 2024. Photo by VnExpress/Hong Thao

What factors do you believe will contribute significantly to the economic growth of Vietnam in 2024?

External trade will be an important factor for Vietnam, and recovery in the semiconductor cycle suggests that Vietnam exports are likely to see a better year compared to 2023. The SBV is also playing an important role as its rate cuts and credit policy continue to provide support to businesses and consumers.

What challenges might hinder the economic growth of Vietnam, and how can they be addressed?

Vietnam is heavily dependent on trade, and the country is benefiting from continued demand from overseas, especially from developed economies such as the U.S. and Europe, and also from the ongoing tensions between the U.S. and China, which are resulting in the shifting of production to other regional countries, including Vietnam.

However, in a global downturn or weakened external demand, Vietnam will be more affected compared to a country that is less trade-dependent, such as Indonesia.

To address these issues, we will diversify into more export markets and develop more industries and sectors (such as agricultural products and food production) rather than depending on a few, such as tech, to improve productivity and competitiveness through education, training, upskilling of workers, and infrastructure investment because competitors may come along with lower costs than Vietnam.

Another way is to increase the value added of the products; relying on competitive labor costs and infrastructure costs and preferential tax and subsidies will not be sustainable, and therefore investments need to be made in R&D and other areas to raise the value added.

UOB’s team projecting 6% growth for Vietnam in 2024 as the economy recovers further towards the pre-pandemic pace. Photo courtesy of UOB

Which industries or sectors do you think will play a crucial role in driving Vietnam's economic expansion in 2024?

The tech-related sector and its supply chains should see better performance in 2024 due to the upturn in the tech cycle. With many countries concerned about food supply and availability, Vietnam stands in a good position as a large producer of rice and other agricultural products, with geopolitical tensions continuing to be a main worry globally.

Sustainability issues will continue to see further developments and demand in the EV space and alternate energy sectors such as solar and wind.

How do global economic trends and geopolitical factors affect Vietnam's economic growth prospects for the coming year?

Vietnam is likely to continue to benefit from the shifts in production in the region due to U.S.-China tensions.

However, geopolitical tensions in the Middle East and Europe can have negative effects on Vietnam, such as in oil prices or disruptions to shipping lanes, which will cause factory orders and delivery delays, causing problems for exporters and producers in terms of production scheduling and cash flows.

In 2023, inflation and exchange rates were widely discussed, what are your thoughts on this topic in 2024?

Inflation was a big problem globally and in Vietnam, but the situation has improved, and the worst is likely to be over. The U.S. Fed had been very aggressive in raising interest rates from 2022 to 2023 and therefore provided support for the U.S. dollar.

A strong USD means weak non-U.S. currencies, including the Vietnam dong. For 2024, we expect the U.S. Fed to cut interest rates starting in June; this will likely see the U.S. dollar weaken, and we forecast the VND to strengthen towards 23,500 by the end of 2024.

However, exchange rate volatility will continue to be present due to market activities and investor reactions to news and data. Therefore, companies will need to manage exchange rate risk carefully.

Suan Teck Kin stated that inflation was a big problem in Vietnam but the worst is likely to be over in 2024. Photo by VnExpress/Hong Thao

What government policies or initiatives are most likely to affect and foster economic development in Vietnam in 2024?

The government's investment infrastructure will be important for this year and for many years to come, e.g., investment in roads, rails, housing, water, electricity, education, and health care.

The spending in these areas will increase business activities (e.g., construction and related supply chains), and benefits will come in the form of higher productivity, lower costs, and better skills in the years to come that will benefit businesses and industries.