UOB Bank: VND may have hit bottom.

ANTD.VN - UOB believes that the recent sell-off of the Vietnamese dong appears to have ended and the VND may follow a recovery trend, but the increase may be limited due to a modest economic recovery in 2024.

According to the latest report from UOB Bank, Vietnam's real GDP growth accelerated sharply to 5.33% year-on-year in Q3 2023, up from 4.14% year-on-year in Q2. This growth was supported by improvements in import-export trade, manufacturing, and domestic consumption, after facing difficulties in the first half of 2023.

Data released between October and November once again confirms that economic activity has stabilized and, in some areas, has shown significant improvement compared to the first half of the year.

Retail sales of goods and services rose 10.1% year-on-year in November, up from 7.0% in October, the fastest growth since May.

Industrial production increased by 5.8% year-on-year in November, driven by a 6.3% increase in output, bringing the overall industrial production growth rate year-to-date to 1.0%.

Year-to-date indices for both the industrial production and manufacturing sectors have turned positive since September, after fluctuating in negative territory at the beginning of 2023.

Manufacturing output has accelerated steadily since recording negative figures in May, suggesting that the industry's growth momentum is likely to continue into 2024.

The Vietnamese Dong is showing signs of recovery.

According to UOB, interest rate cuts by the central bank have helped reduce business costs, while the government has introduced various policies to support businesses.

The Vietnamese real estate market is showing some signs of stabilization and recovery, with reports indicating that many developers have resumed sales and launched new projects.

Despite stronger growth in the third quarter, headwinds from the first six months are the main reason why full-year growth may be limited. “We expect the momentum from Q3 2023 to continue into the final quarter of the year, especially with many supportive domestic policies. We maintain our full-year growth forecast for Vietnam at 5.0%, assuming real GDP growth in Q4 2023 will increase to 7.0% year-on-year,” UOB forecasts.

Regarding monetary policy, according to UOB's assessment, the State Bank of Vietnam responded quickly to the economic downturn earlier this year by swiftly cutting interest rates.

The last policy interest rate cut, in June 2023, lowered the cumulative refinancing rate by 150 basis points to 4.50%.

However, with the pace of economic activity improving and inflation falling below target, the likelihood of further interest rate cuts has decreased.

In fact, the government has shifted its focus to non-interest-rate measures to support the economy. Prime Minister Pham Minh Chinh has instructed the State Bank of Vietnam to ensure sufficient credit supply for the remainder of this year, as the target of 14%-15% credit growth this year may fall short by a few percentage points.

"Therefore, we believe the State Bank of Vietnam will maintain the refinancing rate at its current level of 4.50%, withdrawing our previous forecast of a 100 basis point cut," the UOB report stated.

Regarding exchange rates, UOB suggests that, like other Asian currencies, the recent sell-off of the Vietnamese dong appears to have ended. The USD/VND exchange rate fell in October after the Fed signaled it might end its interest rate hike cycle.

"Although the VND may follow the broader Asian foreign exchange recovery trend, the gains may be limited due to a modest economic recovery in 2024."

"Overall, our updated USD/VND forecast is 24,000 in Q1 2024, 23,800 in Q2 2024, 23,600 in Q3 2024, and 23,500 in Q4 2024," UOB forecasts.

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