Vietnam's economy gradually brightens in H2: UOB

Accordingly, in Q2, Vietnam's GDP increased by 6.93% over the same period.

The total economy also grew by 6.42% in the first half of this year, far exceeding the 3.84% in the same period in 2023.

Suan Teck Kin, Head of Research, UOB spoke about Vietnam's economic outlook for H2 at the event on July 16. Photo courtesy of UOB

Analyzing the growth in each industry, Suan Teck Kin, UOB's Head of Research, said at an event in Ho Chi Minh City on July 16 that production increased for five consecutive quarters, at 10% over the same period (Q12024 reached 7.2%), contributing 29% of the market share.

The service sector accounted for 45% of the overall growth rate of 6.42% in H1.

International trade operates strongly in Q2/2024 due to both consumer demand and the recovery of the semiconductor cycle.

Despite the Russia-Ukraine conflict and transportation disruptions in the Red Sea, exports and imports increased by 14% and 16.6%, respectively, over the same period, and the trade surplus reached US$11.3 billion (almost reaching 2022's yearly number with US$12.1 billion).

Similarly, total domestic retail trade recorded steady growth thanks to retail sales and tourism services.

In particular, hotel and dining sales are in double digits.

In the first 6 months of this year, Vietnam welcomed 8.8 million international visitors.

"With the above positive results, I think that Vietnam's economy in the remaining six months will still be bright, growing about 6–6.5%," Suan said.

Besides advantages, UOB experts also noted that the second half of the year still has many risks related to global conflicts and macroeconomics.

These factors can disrupt the global trade and shipping markets.

A positive point in the overall picture is the increase in registered foreign investment (FDI), reaching US$15.2 billion in the first half year, up 13.1% over the same period.

Realized (or disbursed) FDI capital flows into our country reached US$10.8 billion in the first six months of the year, more than doubling from US$4.6 billion in Q1.

Suan said that the remaining 6 months are quite optimistic.

FDI data shows that Vietnam has many advantages; foreign businesses continue to consider Vietnam an important investment destination in the medium and long terms when the world restructures supply chains.

The increase in both realized and registered FDI inflows will spur a series of domestic activities in the coming quarters.

"These factors demonstrate the trust and commitment of international businesses to Vietnam amid the current wave of deglobalization, risk reduction, and supply chain transformation," Suan said.

Inflation was also a topic that generated a lot of attention at the event.

In the past two years, inflation has increased, moving towards the central bank's target ceiling, caused by rising costs of food, housing, education, and healthcare.

Suan said that to solve the inflation problem, the government needs to increase spending, thereby increasing the supply of long-term sectors (such as improving agricultural productivity).

In the short term, it is possible to expand food imports from multinationals.

Regarding interest rates, in the context of a weakening VND, USD, and high domestic inflation rate, this may make the State Bank of Vietnam cautious about any changes in policies and interest rates.

"Growth momentum may be less effective in the second half of 2024. We believe the State Bank will maintain the refinancing interest rate at the current level: 4.5%," said Suan.

According to the expert, after weak GDP growth and a significant decline in international trade in 2023, businesses and consumers are hesitant to borrow capital to invest or spend due to uncertain prospects.

Confidence may return when data in the first half of this year improves and expectations increase in the following quarters. Loans will increase, depending on how strong the business is.

VND fluctuated 5% against the USD in the past 6 months.

This situation is within the general trend of Asia.

Specifically, yen (Japan) depreciated by 14%, and won (Korea) decreased by 7%.

Thai, Indonesian, Taiwanese, and Philippine currencies also decreased by 6% against the USD.

The central banks of the above countries use a series of market intervention measures to stabilize macroeconomics, limit foreign capital outflows, and devalue domestic currencies.

UOB predicts that the U.S. Federal Reserve (Fed) will cut USD interest rates twice, each time by 0.25% in September and December.

This will be a favorable basis for economies to consider cutting or not raising interest rates, thereby reducing exchange rate pressure on emerging currencies.

However, UOB's Head of Research noted the possibility that USD interest rates will remain high for a long time.

He predicted that the VND will recover.

Specifically, one USD will be exchanged for VND25,200 and VND25,000 in Q3 and Q4, respectively. In Q1/2025, it will be VND24,800, and Q2 will be VND24,600.

In addition, businesses need to pay attention to exchange rate risks and supply chain disruptions.

"Businesses specializing in export, import, or international investment should establish a prevention policy, considering it as part of the risk management strategy and protecting financial position," Suan said.

Besides, it is necessary to maintain balance and plan cash flow management, both foreign exchange and domestic currency (VND), when payment is required.

Holding too much foreign currency can cause a business to lose or profit.

Local currency is needed to pay local suppliers, salaries, rental fees, and taxes.

Transportation and supply of goods are of interest to many experts. Photo courtesy of UOB

Talking about the supply chain disruption or transportation problems, Suan said that the strategy for the business is to expand and diversify markets and supply sources.

"For example, selling products to neighboring markets will open up new opportunities, reducing the risk of shipments being delayed due to long distances," he added.