Identifying challenges and growth drivers

The global economic context has caused demand to decrease, putting pressure on the Vietnamese economy this year. However, Vietnam is still a bright spot, with growth prospects for the end of 2023 and 2024 quite positive.

Triển vọng với kinh tế Việt Nam khá chắc chắn và Việt Nam vẫn là điểm đến hấp dẫn của nhà đầu tư nước ngoài. (Nguồn: Getty Image)

The outlook for Vietnam's economy is quite solid and Vietnam remains an attractive destination for foreign investors. (Source: Getty Image)

In the first eight months of 2023, the macro economy continued to be stable, inflation was controlled, growth was promoted, and major balances were ensured.

Growth Highlights

According to the Government 's report at the regular meeting in August 2023, the average CPI in the first eight months increased by 3.1%, lower than the set target (4.5%). Exchange rates and foreign exchange markets are well controlled; interest rates continue to decline. The stock market recovers. Public debt, government debt, and state budget deficit are well controlled.

In the first eight months, Vietnam had a trade surplus of nearly 20.2 billion USD. Energy and food security were ensured; the labor market recovered well. In particular, the Purchasing Managers' Index (PMI) of the manufacturing sector in August reached 50.5 points compared to 48.7 points in July; showing that the manufacturing sector expanded with new orders and output increasing again.

Development investment continued to achieve positive results. Disbursement of public investment capital in the first eight months reached nearly VND297.7 trillion, reaching 42.1% of the plan, up 2.95%. Total registered FDI capital reached 18.15 billion USD, up 8.2% over the same period, total realized FDI capital in the first eight months increased by 1.3% and increased gradually every month.

At the Vietnam Economic Outlook Report - VBF Economic Outlook for the second half of 2023 recently organized by the Vietnam Business Forum (VBF), Mr. Nitin Kapoor, Co-Chairman of VBF, commented that despite the challenging global geopolitical and geo-economic context, Vietnam's resilience is still a bright spot in the region. According to him, this spirit is thanks to the efforts of government agencies, credit institutions and the business community.

According to Mr. Andrea Coppola, Chief Economist of the World Bank (WB) in Vietnam, in the first months of 2023, Vietnam's economy recorded good news such as stable FDI disbursement and improved public investment compared to the first half of 2022. Therefore, the outlook for Vietnam's economy is quite certain and this is still an attractive destination for foreign investors.

Also here, Director of Mizuho Bank Hanoi Ban Motokatsu said that the Vietnamese Government has timely and effective intervention measures, so inflation is at a safe level, lower than other countries. The economy is gradually recovering. Flexible, timely and effective policies such as reducing operating interest rates, having sales support mechanisms... have an impact on interest rates.

Vietnam is the only country in Southeast Asia that has implemented a policy of reducing interest rates. Although the Vietnamese currency has depreciated against the USD, it is still within an acceptable range. In addition, the credit growth rate has been maintained for a long time. Domestic demand has shown signs of recovery, while the State Bank has plans to increase credit.

Difficult to change quickly in the short term

Besides the good news, Vietnam's economy is still facing many difficulties. Mr. Andrea Coppola commented that the global recession is clearly happening, therefore, Vietnam's main trading partners such as the US, the European Union (EU) and China are affected, the demand for goods in these markets has decreased. According to the WB, the global economic downturn puts pressure on Vietnam's economy, a country whose exports contribute nearly half of its growth value.

In addition, increased uncertainties also affect domestic demand. Retail sales growth has recently slowed to a lower level than in the pre-Covid-19 period (2019) while private sector investment has fallen sharply. The decline in external demand and weaker domestic demand have caused growth to slow down in the first half of 2023. Gross Domestic Product (GDP) growth in the first six months of 2023 reached 3.72%, just higher than the growth rate of 1.74% in the same period of 2020.

At the regular Government meeting in August 2023, Minister of Planning and Investment Nguyen Chi Dung affirmed that the difficulties and challenges are still very large, depending largely on global trends and contexts, so it is difficult to change quickly in the short term.

The biggest difficulty is production and business, enterprises continue to face challenges in the market, cash flow and administrative procedures. In the first eight months, exports decreased by 10%, imports decreased by 16.2%... Along with that, the domestic market has not been effectively promoted; the real estate market has encountered many difficulties. The number of enterprises withdrawing from the market in August increased by 15.8% compared to the same period. The level of access to credit capital of enterprises and people is still limited and difficult. All these difficulties have a direct impact, increasing the pressure on macroeconomic management.

Regarding the growth drivers in the last months of 2023, the WB stated that although domestic consumption has slowed down, it is still a growth driver. The reduction in VAT rate (2%) in the second half of 2023 could contribute to supporting growth. In addition, the wage increase policy (from July 2023) will actively support economic growth. According to the WB, economic growth will not improve in 2023 but will gradually recover in 2024 (5.5%) and 2025 (6%).

Meanwhile, Mr. Ban Motokatsu said that Vietnam's economy is highly open, so its development is closely linked to the growth of the world economy. In order to support economic activities, the Vietnamese Government has taken specific actions to support the real estate and construction industries. These are important points and will be the driving force for growth in the coming time. According to Mr. Ban, Vietnam's economy has a solid foundation, and it is hoped that from 2024 onwards, unfavorable factors will be reduced and the economy will accelerate in the following years.