UOB cautions that growth could decelerate in the latter part of the year.

UOB Bank believes that Vietnam’s growth may slow in the next two quarters 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, in the recently released Vietnam economic growth report for the second quarter, UOB’s research team said that the growth momentum of the economy might slow down 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, the recovery in semiconductor demand, stable growth in China and Southeast Asia, as well as the possibility of 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 the lower limit of the government’s target of 6-6.5%. With growth likely to ease in the second half, the bank forecasts that the State Bank of Vietnam (SBV) will maintain its refinancing rate at its current level of 4.5%. The recent depreciation of the Vietnamese Dong against a stronger US dollar and rising inflation might make the SBV cautious in making any changes to policy rates, according to the report.

The average consumer price index (CPI) in the second quarter increased by 4.39% compared to the same period last year. This fifth consecutive increase in the index suggests that inflation is approaching the threshold of 4.5%. Factors such as the increase in the basic salary by 30% and the minimum wage for employees in enterprises by 6% from July 1 are believed to have an impact on inflation.

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