Vietnamese economy records strong growth of 13.7% in Q3

The report fully outlines that industrial production and retail sales posted another month of high growth rates at 13.0% and 36.1% on-year, figures which can be attributed both to strong economic activities and to the low-base effects. Growth in both exports and imports moderated in September due to weakening demand from major export markets.

FDI commitments fell in September as they were impacted by the heighted uncertainty surrounding global economic prospects, while FDI disbursement continued to improve. Despite softening energy prices, CPI inflation accelerated from 2.9% in August to 3.9% in September, largely due to higher education costs and rents. Core CPI inflation also accelerated, climbing from 3.1% in August to 3.8% in September.

The terms of trade deterioration eased in Q3 compared to Q2. Credit growth accelerated from 16.2% in August to 17.2% in September as the State Bank of Vietnam (SBV) moved to raise credit growth limits on some commercial banks. With strong demand for credit, average overnight interbank interest rates rose from 3.5% in August, reaching 5.48% in mid-October, the highest since 2013. In addition, VND continued to depreciate against a strengthening US$ in September by 1.0% on-month and 3.8% on-year.

To stabilise the domestic currency, on 23 September the SBV raised two key policy interest rates and the cap on key short-term rates placed on deposits denominated in local currency by 100 basis points, the first rate hike since April, 2020. The budget balance posted a US$0.5 billion deficit in September for the first time this year, but still registered a US$10.5 billion surplus over the first nine months of the year. Given the budget surplus. year-to-date government bond issuance reached only 28.7 % of the annual plan, compared to 67.9% in 2021. While the economic recovery has remained strong, heightened uncertainties surrounding slowing global economy, rising domestic inflation, and tightening global financial conditions warrant increased vigilance and policy agility.

WB experts assessed that given the economy has yet to fully recover and growth in main export markets is expected to slow, continued active fiscal policy to support the economy should be closely aligned with economic outcomes and thus co-ordinated with monetary policy.

Simultaneously, as CPI and Core CPI are reaching 4%, the policy rate set by the authorities, monetary bodies should be poised to consider the further tightening of monetary policy to ensure inflation remains anchored. Given the end of forbearance and tightening financial conditions, the financial sector faces heightened risks moving forward, prompting the SBV to issue guidance to help stem materialisation of such risks at the sector level, thereby potentially affecting the real economy.

Think tanks emphasised that the recent turmoil around the Saigon Commercial Bank (SCB) case highlights the urgent need to increase transparency through the timely publication of detailed information, particularly about the banking sector performance. This is along with an enhanced corporate governance, a strengthened risk-based supervision, including supervision of business groups and related party lending and early intervention, and an enhanced bank resolution framework.