Vietnam’s Economic Growth May Slow in Second Half, Says UOB: Will Inflation and Monetary Policy Affect Vietnam’s Future?

Vietnam’s Economic Growth May Slow in Second Half, Says UOB

UOB Bank believes that Vietnam’s growth may slow down in the second half of the year due to a high base and existing external risks. According to the General Statistics Office, GDP in the second quarter increased by 6.93% compared to the same period in 2023, continuing the 5.87% growth in the first quarter. In the first half of the year, Vietnam’s economy grew by 6.42%, far exceeding the 3.84% growth in the same period last year, which creates a positive signal for the rest of the year.

However, UOB’s research team said that while Vietnam has been growing at a strong pace so far this year, there are concerns about a possible slowdown in growth momentum in the second half of the year. External risks such as conflicts in Ukraine and the Middle East could disrupt trade and energy markets. On the other hand, factors such as recovery in semiconductor demand, stable growth in China and Southeast Asia, as well as monetary policy easing by major central banks will be supportive factors for Vietnam’s outlook.

UOB maintained its forecast for Vietnam’s growth this year at 6%, which is below its earlier estimate of 6-6.5%. With growth likely to ease in the second half, UOB expects that SBV will maintain its refinancing rate at its current level of 4.5%. The recent depreciation of Vietnamese Dong against US dollar and rising inflation might make SBV cautious about making any changes to policy rates according to report from UOB bank research team.

The average consumer price index (CPI) increased by 4.39% compared to same period last year which is fifth consecutive increase suggest inflation is approaching threshold of 4.5%. Factors like increase basic salary by 30%, minimum wage for employees enterprises by 6% from July1 are believed to have an impact on inflation.

The European Central Bank (ECB) interest rate cut in June and US Federal Reserve’s possible start of monetary easing in second half could open up opportunities for State Bank of Vietnam (SBV) to follow general trend instead of continuing to lower interest rates government is now focusing on non-interest rate measures to support economy