Vietnam's economy through international perspective: Many positive signs

Production line for electronic devices and lighting equipment in cars and motorcycles at Stanley Electric Vietnam Co., Ltd. (a Japanese-invested company) in Hanoi .

GDP growth is moderate.

Commenting on Vietnam's economy during the 2024 Article IV consultations, Paulo Medas, Head of the International Monetary Fund (IMF) Mission to Vietnam, stated that Vietnam's economic growth is projected to recover to nearly 6% in 2024, supported by continued strong external demand, stable foreign direct investment, and easing policies. Domestic demand growth is expected to remain weak as businesses struggle with high debt levels while the real estate market has not fully recovered. Inflation is expected to fluctuate around the State Bank of Vietnam's (SBV) target of 4-4.5% this year.

However, the IMF statement also noted that risks remain. Exports, a key driver of Vietnam's economy, could weaken further if global growth falls short of expectations, global geopolitical tensions persist, or trade disputes escalate. Domestically, a weakening real estate and corporate bond market could have a stronger-than-expected impact on banks' ability to lend, affecting economic growth and undermining financial stability.

In this context, the IMF welcomes Vietnam's amendments to the Land Law and other real estate-related laws to address legal bottlenecks in this sector. Medas, an expert, suggests that Vietnam needs to continue restructuring weak real estate development companies and promote a healthy corporate bond market.

In line with very positive assessments of the Vietnamese economy, the latest economic update from Standard Chartered Bank forecasts that Vietnam's Gross Domestic Product (GDP) growth will reach 5.3% in the second quarter of 2024. According to experts, retail sales growth is projected at 8.2% year-on-year in June (compared to 9.5% in May), and export growth at 14.2% (up from 15.8% in May). Electronics exports are expected to continue improving this year.

Import growth and industrial production are likely to reach 26.0% and 5.2% respectively in June. Inflation may rise to 4.5% from 4.4% in May, marking the third consecutive month of inflation above 4%. This is due to rising prices for education, housing and construction materials, healthcare, and food. This trend is likely to continue in the coming months.

Tim Leelahaphan, Vietnam and Thailand economist at Standard Chartered Bank, shared: “Although growth in the second quarter is likely to slow, we believe Vietnam maintains a very positive recovery momentum. The economy may face challenges in the third quarter, amid global price pressures, exchange rate fluctuations, and declining demand.”

Standard Chartered forecasts that the State Bank of Vietnam may raise the refinancing rate by another 50 basis points in the fourth quarter amid rising inflation.

Attracting FDI continues to be positive.

Echoing Standard Chartered's sentiment, the World Bank (WB), in its updated report on Vietnam's macroeconomic situation published on June 19th, noted that the Vietnamese economy has shown many positive signs. The Industrial Production Index (IIP) in May increased by 2.6% compared to the previous month, driven primarily by strong growth in manufacturing sectors such as machinery and equipment, computers, and electronic products.

Exports and imports also increased. According to the World Bank, the significant growth in imports of intermediate input products indicates increased demand from trading partners, and therefore exports are likely to be higher in the near future.

Meanwhile, attracting foreign direct investment (FDI) continues to be positive. FDI commitments reached US$11.07 billion by the end of May 2023, 2% higher than the same period last year. Cumulative FDI disbursements also reached US$8.3 billion, 7.8% higher than the same period in 2023. The majority of FDI capital continues to be concentrated in the processing, manufacturing, and real estate sectors.

Regarding retail sales, which, despite increasing compared to the previous month, remained weak compared to the same period last year, the World Bank (WB) stated that while international demand is recovering, domestic demand, especially consumer spending, remains weak. According to the WB, the government has implemented several measures to support the domestic economy. However, given the strengthening US dollar, lowering interest rates to support investment could increase exchange rate pressure. Therefore, the WB believes Vietnam needs to continue supporting aggregate demand through investment.

The bond market is gradually recovering.

According to the latest report from the Asian Development Bank (ADB), Vietnam's local currency bond market recovered with a 7.7% growth in the second quarter of 2024 compared to the previous quarter, thanks to increased government bond issuance and the State Bank of Vietnam's decision to resume central bank bill issuance in March. Treasury bonds and other government bonds increased by 3.3% in the second quarter to support government funding requirements. Corporate bonds decreased by 0.9% due to a large volume of maturing bonds and low issuance.

The sustainable bond market in Vietnam reached a size of US$800 million at the end of March. This market includes green bonds and other sustainable bond instruments issued privately by businesses, and most have short maturities.

Bond yields in emerging East Asia have risen, amid slower-than-expected deflation that has bolstered the likelihood of higher interest rates for a longer period. This has boosted both short-term and long-term bond yields in both developed economies and regional markets. According to the ADB report, government bond yields rose by an average of 56 basis points across all maturities due to rising domestic inflation and the Federal Reserve's delay in cutting its benchmark interest rate.

According to baotintuc.vn

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