UOB forecasts a slight recovery for the VND.

UOB Bank has just released a forecast suggesting that the recovery in manufacturing and exports will be factors contributing to a potential slight rebound in the VND in 2024.

Regulatory agencies are striving to improve the business environment, thereby increasing businesses' access to capital so that banks can boost lending to the economy - Photo: Le Toan

The USD/VND exchange rate reached a new high of 24,700 VND/USD at the end of February 2024, along with a significant strengthening of the USD against Asian currencies.

UOB economists note that the VND often follows the same recovery trend as the CNY, as they have observed the currency of the world's second-largest economy continuing to recover recently.

At the same time, the weakening of the USD ahead of the US Federal Reserve's interest rate cut in June will bring a slight recovery to the VND, UOB noted.

UOB believes the VND has the potential for a slight recovery, forecasting the USD/VND exchange rate to be at 24,400 VND/USD in the second quarter of this year, then falling to 24,200 VND/USD in the third quarter and to 24,000 VND/USD in the fourth quarter of 2024.

Accordingly, this Singaporean bank forecasts that in the medium term, the USD/VND exchange rate will be at 23,800 VND/USD.

The stability of the VND is also attributed to the more positive pace of economic recovery in Vietnam during the first two months of 2024 compared to the same period in 2023.

According to the latest figures released by the General Statistics Office (GSO), Vietnam's exports and industrial production in February fell sharply, with exports down 5% year-on-year and industrial production down 6.8% year-on-year, compared to increases of 42% and 18.3% respectively in January.

The sharp decline is largely due to the Lunar New Year falling in February this year. For a more accurate comparison, aggregated data from January to February shows exports increased by 17.6% year-on-year in 2023, while industrial production increased by 5.7% compared to the average of -2.2% for the January-February period in 2023.

Notably, in January and February 2024, the Purchasing Managers' Index (PMI) both rose above 50 points, after four months last year where the index was below 50 and averaged 49.3 points in January and February of last year.

These data suggest that overall momentum in manufacturing and external trade is showing positive signs, and we expect this pace to continue, particularly in the second half of 2024 as the recovery in the semiconductor sector solidifies and global central banks begin to implement more accommodative interest rate policies.

While risks from external events continue to weigh on the global economic outlook (including conflicts in Eastern Europe and the Middle East), Vietnam's outlook is bolstered by the recovery of the semiconductor industry, stable growth in China and the region, and supply chain shifts that benefit Vietnam and ASEAN.

Accordingly, UOB forecasts Vietnam's GDP growth in the first quarter of 2024 to reach 5.5%, compared to 3.3% in the same period of 2023. The bank also explained that this GDP growth rate did not meet the expectations of Vietnamese policymakers because February this year coincided with the Vietnamese Lunar New Year holiday.

However, overall, UOB bank economists maintain their growth forecast for Vietnam at 6.0% for 2024, within the official target of 6.0-6.5%.

"With the pace of economic recovery, the likelihood of further interest rate cuts has decreased. Therefore, we believe the State Bank of Vietnam will keep the refinancing rate at the current level of 4.50%."

“We anticipate inflationary pressures will continue to rise, with the overall CPI forecast to increase to 3.8% in 2024, up from 3.25% in 2023,” UOB’s economic report stated.

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