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Economic update – Envisaging stronger recovery in 2H23

Economics Note 17/07/2023    165

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  • Vietnam’s 2Q23 GDP rose 4.1% yoy, a slight improvement from 3.3% yoy growth in 1Q23.
  • We forecast Vietnam’s GDP to increase 7.1% yoy in 2H23, thus lifting 2023 full-year growth rate to 5.5% you.
  • The implementation of fiscal expansion policy and falling domestic interest rates are the two main factors driving economic recovery in 2H23.

Vietnam’s economic growth was low in 2Q23 as headwinds lingered
According to General Statistics Office (GSO), Vietnam’s GDP grew only by 4.1% yoy in 2Q23, a slight improvement from 3.3% yoy growth in 1Q23. Regarding to three main pillars of the economy, industry and construction sector expanded by 2.5% yoy while service and agriculture sector increased by 6.1% yoy and 3.2% yoy, respectively. For 1H23, Vietnam’s economy grew by 3.7% yoy, the second lowest level in 2011-2023 period. Key factors hindering Vietnam’s economic growth in the first half of 2023 include falling export orders, high lending rates and a sluggish real estate market.

We expect Vietnam’s economy to accelerate recovery in 2H23
We expect Vietnam’s GDP to increase 7.1% yoy (+/-0.3% pts) in 2H23F (vs. +3.7% yoy in 1H23), thus lifting 2023 full-year growth rate to 5.5% yoy (+/-0.2% pts). We expect Vietnam’s economy to maintain its recovery momentum next year and forecast GDP growth of 6.9% yoy (+/-0.3% pts) in 2024F. The main supports come from: (1) The government implements expansionary fiscal policy to support growth, (2) Lower lending interest rates help stimulate consumption and private investment and (3) Vietnam’s agricultural and manufacturing export orders are likely to recover from 4Q23.

Vietnam’s export could rebound significantly from 4Q23
We expect Vietnam’s exports to rebound in 4Q23 due to (1) the decrease in inventories in the developed countries will stimulate demand for Vietnam’s exports, (2) the cycle of replacing old smartphones with newer ones is 25.3 months, or about 2 years, which will boost demand for Vietnam’s smartphone exports from 4Q23, (3) The full impact of demand recovery from China after the economy reopens.

Interest rates likely to fall further in 2H23
We forecast the average 12-month deposit interest rate drop to 6.0-6.2% p.a by the end of 2023, based on the following reasons: (1) the ongoing impacts of the SBV’s rate cuts, (2) weak credit demand due to economic slowdown and gloomy real estate market, (3) the government will further promote public investment, thereby injecting more money into the economy and (4) the SBV still has room to decrease its policy rates. In addition, we believe that lending interest rates would decrease significantly in 2H23 as the cost of capital of commercial banks is decreasing thanks to: (1) the impacts of SBV’s rate cuts and (2) SBV issued Circular 02 allowing extension of provision for bad debts.

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