In its recent macroeconomic report on Vietnam, Standard Chartered Bank forecasts that the Vietnamese economy will recover in the second half of the year and grow at 7% YoY (from 3.7% in the second half of the year). Consistently improving trade data on a monthly basis from the beginning of 2023 shows a more pronounced recovery in the second half of the year.

Mr. Tim Leelahaphan, Economist covering Thailand and Vietnam at Standard Chartered shared: “The medium-term outlook remains promising given Vietnam’s economic openness and stability. A continued recovery in tourist arrivals should shore up the services balance”.

Although macroeconomic indicators have improved, they are still relatively weak as trade activity continues to decline, leading to a slowdown in production and economic activity. The trade surplus increased in the second quarter, but exports fell year-on-year.

Overall, Vietnam's first half trade surplus surpassed last year as a larger drop in imports (against lower energy prices) offset the slow export growth rate. Standard Chartered has lowered its GDP growth forecast for Vietnam in 2023 to 5.4% from 6.5% previously. The bank is also more cautious with lower-than-expected year-to-date data and a gloomier global economic outlook.

Inflation forecast for 2023 is revised down to 2.8% (vs. 4.3%). A sustainable resumption of investment flows may require government efforts and an improved global economic landscape. To restore FDI inflows, Vietnam needs continued rapid GDP growth and infrastructure development. A solid infrastructure, especially in the logistics sector, could encourage more manufacturers to move to Vietnam.

Standard Chartered Bank forecasts that the State Bank of Vietnam will continue to cut the refinancing rate by another 50 basis points to 4% in the third quarter (the same level as during the pandemic years) and leave it unchanged until the end of 2025. In addition to cutting interest rates, the State Bank eased loan terms, including delaying repayment (up to 12 months) with reasonable interest rates. However, it remains unclear how property developers can arrange interest and principal payments on bonds, as well as to finance projects and working capital. The real estate market may need further liquidity support, as the measures taken so far appear to be helping to relieve short-term debt repayment pressure.

According to economic experts, the risks to the VND foreign exchange market are relatively balanced. The bank forecasts the VND/USD exchange rate at 23,400 from the end of 2023 to the third quarter of 2024. Precautionary reserve rebuilding should cap the Vietnamese dong upside in the near term; repricing higher of U.S. Fed terminal rates and a weaker CNY also weigh on the dong.

Kylie Nguyen