Hanoi (VNA)ღ – The Singapore-based United Overseas Bank (UOB) has downgraded Vietnam’s economic growth rate to 5.9% this year due to the impact of recent Typhoon Yagi, according to the bank’s latest report on the economic situation in the third quarter of the year.

According to a report released on September 24, before the typhoon made landfall, the Vietnamese economy during eight-month period witnessed strong growth momentum. The country’s Purchasing Managers' Index (PMI) has outperformed its neighbouring countries in the ASEAN region since June. Manufacturing output recorded double-digit growth year-on-year in four consecutive months from May to August. By the end of August, exports recorded double-digit growth throughout the reviewed period with the country racking up a trade surplus of 18.5 billion USD. Retail sales maintained an average monthly growth rate of 8.8% year on year, despite a high base in 2023. Furthermore, foreign direct investment (FDI) inflows continue to surge, which in turn reflects the optimism held by foreign investors, reaching 20.5 billion USD in eight months, 7% higher than the figure recorded in the same period last year. As of the end of October, about 33% of registered FDI came from Singapore, followed by Japan (12%).

According to UOB’s experts, the impacts of Typhoon Yagi will be seen more clearly in the northern parts of the country in late third quarter and early fourth quarter. The impacts can be reflected through lower output and damaged facilities across a range of sectors, including manufacturing, agriculture and services. However, beyond these temporary disruptions, long-term fundamentals remain solid. Although Vietnam grew at an impressive 6.93% in the second quarter of this year - its fastest pace in nearly two years, UOB experts believe that this strong growth momentum is unlikely to continue in the second half of 2024. Taking into account the impact of Typhoon Yagi, recovery efforts and a higher base in the second half of 2023, UOB is revising down its growth forecast for Vietnam. Accordingly, UOB forecasts growth to slow to 5.7% in the third quarter, down from 6% as expected previously and to 5.2% for the fourth quarter, down from 5.4% as expected previously. As a result, the full-year growth forecast is lowered to 5.9%, down by 0.1% percentage points from the previous forecast of 6%. Forecasts continue to show positive recovery from 2023’s 5% growth. The GDP growth forecast for 2025 was revised up by 0.2% percentage points to 6.6%, reflecting an expected increase to offset the earlier decline. Despite the impacts of Typhoon Yagi and the significant recovery of the VND since July, UOB experts still expect the State Bank of Vietnam (SBV) to maintain its key policy rate for the rest of 2024 while keeping an eye on inflation risks. From the beginning of this year to the end of August, headline CPI rose 4% year-on-year in August, a little lower than the target of 4.5%. Inflationary pressures are likely to increase following disruptions to agricultural output, as food accounts for 34% of the CPI. The SBV is likely to adopt a more targeted support approach to support affected individuals and businesses in the region rather than deploying a broad-based support tool such as a rate cut across the country. As such, UOB expects the SBV to maintain the refinancing rate at the current level of 4.50% while focusing on boosting credit growth and other support measures, the bank said. However, the US Federal Reserve’s announcement of a 50 basis point interest rate cut at its September meeting could increase pressure on the SBV to consider a similar policy easing, the UOB expert stressed.

According to UOB experts, in line with the moves of other currencies in the region, the VND recorded its largest quarterly gain since 1993, recovering 3.2% to 24,630 VND against USD. External pressure from the strength of the USD is starting to ease as the Fed begins its easing cycle as expected, while internal factors point to further stability for the VND. UOB’s updated USD/VND forecast are 24,500 VND in fourth quarter of 2024; 24,300 VND in first quarter 2025; 24,100 VND in second quarter of 2025 and 23,900 VND in third quarter of 2025./.