Stormy Weather Ahead: How Typhoon No. 3 Threatens to Disrupt Vietnam’s Economic Boom

UOB experts believe that the impact of Typhoon Yagi will be felt more clearly at the end of the third quarter and the beginning of the fourth quarter of 2024, slowing down the growth rate of Vietnam’s economy compared to previous forecasts. UOB forecasts Vietnam’s economic growth in 2024 will reach 5.9%. (Photo: Vietnam+)UOB forecasts Vietnam’s economic growth in 2024 to reach 5.9%. (Photo: Vietnam+)

On September 24, UOB Vietnam Bank published a report on the economic situation in the third quarter with many updated forecasts on growth after the impacts of Typhoon Yagi.

Lower growth to 5.9%

According to UOB experts, before storm Yagi, Vietnam’s data until August still showed strong growth momentum. Vietnam’s Purchasing Managers’ Index (PMI) has outperformed neighboring countries in the ASEAN region since June 2024. Manufacturing output recorded four consecutive months of double-digit growth (year-on-year) from May to August.

Exports recorded double-digit increases (compared to the same period last year) in 7 out of the first 8 months of the year, with a trade surplus reaching 18.5 billion USD by the end of August 2024. Vietnam is aiming to exceed or at least equal a record trade surplus of 28.4 billion USD in 2023. From the beginning of the year to the end of August 2024, retail sales have maintained a growth rate. Average monthly growth is 8.8% over the same period, despite a high base in 2023.

Besides, foreign direct investment (FDI) data continues to reflect the optimism of foreign investors towards Vietnam. By the end of October 2024, realized FDI inflows increased by 8% to 14.2 billion USD and if this upward momentum continues, the full year FDI inflows are likely to reach over 20 billion USD for the third consecutive year ( 2023 reaches 23.2 billion USD).

FDI prospects are strong, with registered FDI inflows of $20.5 billion as of August 2024 (7% higher than the $19.2 billion recorded in the same period in 2023), with Nearly 70% is in the manufacturing sector. By the end of October, about 33% of registered FDI came from Singapore, followed by Japan (12%).

Regarding growth prospects in 2024, the impact of Typhoon Yagi will be felt more clearly at the end of the third quarter and beginning of the fourth quarter of 2024 in the northern regions of the country. The impact will be felt through reduced output and damaged facilities in many sectors such as manufacturing, agriculture and services. However, beyond these temporary disruptions, long-term fundamentals remain quite solid.

Although Vietnam grew outstandingly at 6.93% in the second quarter of 2024, the fastest pace in nearly 2 years, UOB experts believe that this strong growth momentum is unlikely to continue in the second half. end of 2024. After taking into account the impact of Typhoon Yagi, reconstruction efforts and a higher base in the second half of 2023, UOB is adjusting Vietnam’s growth forecast downward.

For the third quarter of 2024, UOB forecasts growth to slow to 5.7% (down from 6% previously) and for the fourth quarter of 2024 to 5.2% (down from 5%. .4%). Therefore, the full year growth forecast was lowered to 5.9% (a decrease of about 0.1 percentage points compared to the previous forecast of 6%). This is still a positive recovery compared to 5% growth in 2023. The GDP growth forecast for 2025 is revised up by 0.2 percentage points, to 6.6%, reflecting the expected increase expected to make up for previous declines.

VND recovered from record lows in the third quarter

Despite the impact from the recent storm Yagi and the VND exchange rate recovering significantly since July, UOB experts still expect the State Bank of Vietnam to maintain key policy interest rates for the remainder of 2024. At the same time, pay attention to inflation risks.

From the beginning of the year to the end of August, headline CPI increased by 4% over the same period last year, only slightly lower than the target of 4.5%. Upward price pressure is likely to increase following disruptions in agricultural output, as food accounts for 34% of the CPI weight.

“The State Bank will likely apply a more focused support approach to support affected individuals and businesses in the region instead of deploying a nationwide support tool such as cutting reduce interest rates. Therefore, we predict that the State Bank will maintain the refinancing interest rate at the current level of 4.50% while focusing on promoting credit growth and other support measures. However, the US Federal Reserve’s announcement of a 50 basis point interest rate cut at its September meeting could increase pressure on the State Bank to consider a similar policy easing. ,” the UOB expert emphasized.

UOB assessed that VND recorded the largest quarterly increase since 1993, recovering 3.2%. (Photo: Vietnam+)

Also according to UOB expert, in line with other regional currencies, VND recorded the largest quarterly increase since 1993, recovering 3.2% to reach 24,630 VND/USD. External pressure from USD strength is starting to fade as the Fed begins its easing cycle as expected, while internal factors point to further stabilization of the VND.

Expectations of a stable monetary policy from the State Bank with a focus on promoting credit growth also supported VND. However, further increases in VND from here are unlikely to occur at the same pace as in the third quarter of 2024.

“Overall, our updated USD/VND forecast is VND 24,500 in the fourth quarter, VND 24,300 in the first quarter of 2025, VND 24,100 in the second quarter of 2025 and VND 23,900 in the third quarter of 2025.” UOB expert said./.