UOB: Vietnam's GDP to drop to 5.9 per cent due to typhoon Yagi
The typhoon's impact is expected to be felt more clearly in the northern regions towards the end of the third quarter and the start of fourth quarter, leading to reduced output and damage to manufacturing, agriculture, and service facilities.
In its latest report, the Singapore-based United Overseas Bank (UOB) stated that Vietnam’s strong growth momentum in the first half of the year is unlikely to be sustained for the remainder of the year due to disruptions from the typhoon Yagi, reconstruction efforts, and a high comparative base from the second half of 2023.
The typhoon's impact is expected to be felt more clearly in the northern regions towards the end of the third quarter and the start of the fourth quarter, leading to reduced output and damage to manufacturing, agriculture, and service facilities.
As a result, economic growth is expected to slow down to 5.7 per cent and 5.2 per cent in the third and fourth quarter, respectively, compared to earlier forecasts of 6 per cent and 5.4 per cent.
The bank has therefore slightly reduced Vietnam's GDP growth forecast from 6 per cent to 5.9 per cent for 2024.
Despite these short-term disruptions, UOB's report highlighted that Vietnam’s long-term fundamentals remain solid. The annual growth rate is still projected to be a "positive recovery" compared to 2023, however.
The Singaporean bank has also revised its projection of Vietnam’s GDP growth rate for 2025 to 6.6 per cent, 0.2 per cent higher than its previous projection to compensate for 2024.
The typhoon caused an estimated damage of around VND50 trillion ($2.03 billion), according to the Government Resolution No.143/NQ-CP dated September 17 on recovery effort after Typhoon Yagi across 26 cities and provinces in northern Vietnam. These localities account for around 41 per cent of the country’s GDP and 40 per cent of its population, according to preliminary data from the Ministry of Planning and Investment. This impact is expected to reduce national GDP growth by around 0.15 per cent, to an estimated 6.8-7 per cent for 2024.
Although the typhoon and currency fluctuations have affected the economy, UOB expects the State Bank of Vietnam to maintain its refinancing rate at 4.5 per cent, while focusing on promoting credit growth and other supportive measures.
However, there are two key pressures to monitor. First is inflation risk, with the CPI rising 4 per cent year-on-year over the first eight months, nearing the 4.5 per cent target. Second, the U.S. Federal Reserve's anticipated interest rate cut could pressure Vietnam’s central bank to consider similar easing measures.
On a positive note, the Vietnamese dong (VND) has seen its largest quarterly gain since 1993, appreciating by 3.2 per cent to VND24,630 per USD. However, UOB cautions that further gains may be more gradual as external pressures from the U.S. dollar begin to ease and the Fed initiates a monetary easing cycle.
Moreover, foreign direct investment (FDI) data continues to highlight the confidence of international investors in Vietnam. As of the end of October, actual FDI inflows increased by 8 per cent to reach $14.2 billion. If this growth trend persists, the annual FDI inflow could exceed $20 billion for the third consecutive year, following the $23.2 billion recorded in 2023.
FDI prospects remain robust, with registered FDI this year reaching $20.5 billion by August, up 7 per cent from $19.2 billion in the same period of 2023. Nearly 70 per cent of this investment is concentrated in the manufacturing sector. As of the end of October, approximately 33 per cent of the registered FDI originated from Singapore, followed by Japan at 12 per cent.
