Ample room remains for Vietnam's economic recovery

This is an assessment by the International Monetary Fund (IMF) and DBS - Singapore's leading consumer bank on Vietnam's economic situation in the first half of this year.

In the context that the world situation continues to see complicated fluctuation, with internal difficulties, Vietnam's Gross Domestic Product (GDP) in the first 6 months of 2023 hit a mere 3.72%, not as high as expected.

However, most experts consider this to be an appropriate growth rate in the general context of the global economy, and are optimistic about the nation’s economic recovery in the coming time.

After a periodical consultation on Vietnam's economic situation in June, Head of the International Monetary Fund (IMF) 2023 Article IV Mission to Vietnam Paulo Medas said  Vietnam said that like other countries in the world, Vietnam is facing and difficult and complex external conditions such as falling global growth and growing interest rates.

In addition, the country also faces internal problems such as the slowdown of the real estate market, and the corporate bond market. However, the gradual easing of the monetary policy such as lowering interest rates, cutting taxes and expanding public spending have helped mitigate the impact of headwinds.

With the above comments, the IMF believes that Vietnam's economic growth will recover in the second half of 2023, reaching about 4.7% for the whole year thanks to the recovery of exports and easing domestic policies.

Inflation is forecast to be kept in check below the State Bank of Vietnam (SBV)'s 4.5% target in the medium term, therefore, Vietnam could return to high growth once structural reforms are carried out.

According to expert Paulo Medas, Vietnamese policies should primarily focus on ensuring macroeconomic and financial stability, while accelerating reforms.

Fiscal policy can play a larger role in supporting economic growth and the poorest and most vulnerable. The IMF also recommended that Vietnam take drastic actions to restructure the real estate market and promote the healthy development of the corporate bond market; improve the business environment, upgrade critical infrastructure, and invest in education.

Meanwhile, Singapore’s DBS Bank Limited noted that in the first half of 2023, the amount of foreign direct investment (FDI) poured to Vietnam rose about 30%, commenting that it remains an attractive destination for investors thanks to the production transition trend, free trade agreements it has signed, and its high middle-term economic outlook at 6-7% as well as the growing electronic ecosystem.

The FDI inflows indicated that foreign investors’ confidence in the long-term potential of Vietnam has maintained.
The bank said it believes that in the second half of this year, Vietnam’s exports will increase again along with the recovery of the world electronics sector, while domestic services and tourism sector will continue to thrive and support the national economy.

Marco Förster, head of ASEAN advisory at Dezan Shira & Associates, a consultancy firm, said that despite the current difficulties, Vietnam is anticipated to experience rapid economic growth in the medium term due to its emerging position as a leading manufacturing hub in Southeast Asia, its well-educated population, and increased capital investment.

S&P Global Ratings forecast that the Vietnamese economy will recover in the next 24 months as global demand picks up and Vietnam gradually tackles domestic challenges.

Meanwhile, in a recently-released report, the Organization for Economic Cooperation and Development (OECD) predicted that the Vietnamese economy will record a 6.5% growth in 2023 and 6.6% in 2024.

Regarding the Vietnamese tourism sector, the Google Destination Insights report shows that Vietnam was the seventh most searched destination between March and June and the only country in Southeast Asia to make it to the top 20.

Gary Bowerman, a tourism analyst based in Kuala Lumpur (Malaysia), stated that changes in visa regulations will help Vietnam's tourism industry grow in the second half of this year.

The number of visitors to Vietnam is projected to increase sharply, especially when the Chinese market resumes. However, the number of international visitors to the country has not yet reached the pre-COVID-19 pandemic level, he analyzed.

According to the OECD, Vietnam also needs to better exploit domestic tourism, quickly diversify the sources of visitors from outside, with a particular focu on the markets of ASEAN member states and India, which Vietnam currently exploits with limited resources compared to other neighbouring countries such as Laos, Cambodia or Malaysia.

With a competitive workforce and large investment capital, experts believe that there remains plenty of room for Vietnam to take proper measures to boost economic growth and recovery in the remaining months of the year.