Citi estimates robust macro prospects heading into 2025

Vietnam’s GDP growth in the second quarter accelerated to 6.9 per cent on-year, up from 5.7 per cent from the first quarter, indicating enhanced economic resilience. Real export growth remained robust, with an on-year increase of 17 per cent, driven by a surge in manufacturing exports and rising foreign direct investment (FDI).

“At the start of the year, we anticipated a strong recovery for Vietnam following a challenging 2023. We are delighted to see that the mid-year growth has exceeded expectations,” said Citi’s chief economist for Vietnam, Helmi Arman. “The increase has been driven by the manufacturing sector’s continued acceleration and a rebound in export-oriented industries.”

Citi is proud to contribute to this progress by facilitating higher FDI inflows for our clients in Vietnam and for new entrants, he added.

Citi anticipates industrial cost pressures to normalise in 2024, with inflation likely to remain in the 3.5-4 per cent range. While food inflation remained elevated in June, it was offset by declining fuel prices.

Citi economists remain optimistic about the limited possibility of an additional increase in inflation. Further adjustments may occur in domestic electricity tariffs, but softer global growth is expected to lower oil prices in the second half of 2024 and into 2025, contributing to reduced transport costs.

Additionally, declining rice prices in neighbouring countries could reduce demand for Vietnam’s rice exports, leading to a decrease in domestic food inflation.

Overall, Citi economists do not foresee a sustained breach of the 4.5 per cent inflation target, even though core inflation could rise as they expect a recovery in domestic demand.

In early 2024, Citi’s outlook research indicated that the risk of balance of payments pressure appeared manageable as Vietnam’s current account surplus and FDI inflows were likely to remain strong, offsetting outflows from negative interest rate differentials. The stability of the USD-VND exchange rate has been supported by Vietnam’s surplus in the first quarter and central bank policies, despite some upward pressure.

Citi shared its optimistic outlook on Vietnam’s overall macro prospects for 2024 at the bank’s annual C-Suite Forum in Hanoi in January. The forum highlighted that the medium- to long-term outlook for Vietnam was “unmistakably strong” and with windows of “extraordinary opportunity” for the country.

According to Arman, Vietnam’s economy is expected to continue benefitting from the ongoing global supply chain shifts, which will likely drive industrial production and export growth through 2024. After slight declines in exports in 2023, Citi forecasts a rebound in Vietnam’s export market as investments in manufacturing continue to see strong inflows. This is likely to further strengthen Vietnam’s positions as a key manufacturing hub.

Meanwhile, Vietnam’s strong current account surplus and net FDI inflows in the first quarter have contributed to this stability, with policy measures by regulators also playing a key role. Compared to the start of the year, interbank rates have already risen by 400-500 basis points, and the State Bank of Vietnam has intervened in the gold market, resulting in a compression between domestic and international gold prices.

Looking forward, Citi has revised its 2024 GDP growth forecast for Vietnam from 6 to 6.4 per cent.

“The economic environment in Vietnam is witnessing a steady recovery in GDP growth,” said Trung Hoang, head of Corporate Sales and Solutions at Citi Vietnam. “Structural reforms are underway to strengthen the banking sector and also to kickstart the real estate market’s recovery. Besides that, Vietnam’s proactive approach in expanding free trade agreements with potential markets has been pivotal in attracting foreign direct investment for the country.”