Vietnam's GDP Forecasts Split: Growth Outlook Hinges on Global Headwinds

Two recent forecasts paint a mixed picture of Vietnam's economic trajectory.

Standard Chartered Bank, which has been celebrating its 120-year-history in the South East Asian country, projects a moderate but still-robust 6.1% GDP growth in Q1, slowing slightly from an impressive Q4 2023. For the full year 2024, they maintain a 6.7% growth forecast, anticipating an acceleration in the second half of the year.

UOB Bank just two weeks earlier offered a more tempered projection for Q1, estimating a 5.5% GDP growth rate affected by Tet holiday disruptions. Despite this expected slowdown, they mirrored Standard Chartered's optimism for the year as a whole, forecasting a 6.0% expansion within the government's target range. Standard Chartered, meanwhile, predicts a GDP growth rate of 6.7% for 2024.

Factors Behind the Forecasts

Both banks cite rising inflation as a key factor. Standard Chartered anticipates a March inflation rate of 4.2%, driven by education, housing, and food costs, while UOB sees CPI reaching 3.8% for the year. These projections slightly exceed Vietnam's official target, potentially influencing monetary policy decisions.

Crucially, the banks agree in their assessment of global trade headwinds. While Standard Chartered expresses greater caution about their impact on Vietnam's export-driven growth, it forecasts trade recovery, while UOB expects a stronger comeback in the semiconductor sector and easing global interest rate cycles to buoy Vietnam's manufacturing and external trade from the second half of 2024.

Interestingly, both banks concur that the State Bank of Vietnam will likely hold interest rates steady after reductions in 2023. This reflects both easing inflationary pressures and an effort to support growth-focused economic activity.

Balancing Domestic Strengths and Global Risks

The contrasting forecasts underscore a central question: will Vietnam's domestic manufacturing gains and a rebound in FDI prove robust enough to navigate a still-uncertain global trade environment?

The continued strength of Vietnam's PMI scores and its comparative advantage in certain manufacturing sectors offer positive indicators. However, a downturn sharper than anticipated in key export markets could dampen full-year GDP growth.

Navigating these complexities will be key for Vietnam in 2024. Maintaining a favorable environment for FDI, addressing inflationary pressures without stifling growth, and capitalizing on its strengths within shifting global value chains will be crucial to meet or even surpass the 6-6.5% GDP growth target.