Despite the global headwinds, the outlook for Vietnam remains solid, with domestic demand being the main driver of growth in 2023 and into the near future, analysts told the Vietnam Economic Outlook H2 2023 conference in Hanoi on September 8. The country remains an attractive destination for foreign investors thanks to its stability and openness.

Organized by the Vietnam Business Forum (VBF), the conference saw the participation of more than 300 people both in person and online. This inaugural holding marks the beginning of a significant annual VBF event within Vietnam’s business community.

In his opening remarks, Mr. Nitin Kapoor, VBF’s Co-Chair, emphasized that in the context of the world facing many challenges, it has been impressive to see how Vietnam has managed to deliver 3.72 per cent growth, which, though not exceptionally high, stands as a testament to the country’s stability. Meanwhile, its macro-economy remains secure and inflation is under control. Mr. Kapoor attributed the country’s growth to strong support from government agencies, credit institutions, experts, and the business community as a whole.

Mr. Andrea Coppola, Lead Economist and Program Leader for Vietnam at the World Bank, said the global slowdown is affecting Vietnam’s main trading partners such as the US, the Euro area, and China. The World Bank has forecast that the global economy will grow by 2.1 per cent in 2023 and 2.4 per cent in 2024, while growth in 2023 and 2024 in the US, the Euro area, and China will be 1.1 per cent and 0.8 per cent, 0.4 per cent and 1.3 per cent, and 5.6 per cent and 4.6 per cent, respectively.

Regarding Vietnam’s economy, he noted that the main challenge is weak external demand associated with the global economic slowdown. Over recent years, Vietnam has become a major player in the global supply chain by attracting foreign investment and expanding export markets. But the downside of this is that the country is vulnerable to fluctuations in global demand. Export-related activities, which contribute nearly half of its growth value, have declined, posing certain risks to the economy. Difficulties also affect processed and manufactured goods exported to the US, the EU, and China.

In fact, the slump in external demand and weaker domestic demand led to a sharp slowdown in Vietnam’s economic growth in the first half of 2023. Trade value contracted due to weak external demand, with exports falling 12 per cent and imports 17.9 per cent year-on-year in the first half. Domestic demand, meanwhile, has moderated after last year’s strong post-pandemic rebound. Both private consumption and private investment have been weighed down by greater uncertainty. The World Bank projects that Vietnam’s growth will remain subdued in 2023, reaching 4.7 per cent, and then recover gradually to 5.5 per cent in 2024 and 6 per cent in 2025, subject to downside risks.

Mr. Coppola noted that the economic slowdown and downside risks call for effective policy action. Given the risks from the weaker-than-expected recovery of main trading partners, the further tightening of global financial conditions, and increased divergence between the monetary policy stance in Vietnam and in developed countries, it is particularly important for Vietnam to leverage fiscal policy to the extent possible to boost domestic demand.

From a banking perspective, Mr. Motokatsu Ban, Managing Director of Mizuho Bank, Hanoi Branch, highlighted the strong domestic demand in Vietnam’s economic environment. Thanks to the State Bank of Vietnam (SBV)’s interest rate cuts and the government’s reductions of VAT rates, Vietnam’s domestic economic activity has gradually begun to show signs of recovery. In fact, import volumes have been on the rise since April, while the number of  foreign tourists reached 1.2 million in August; with the country now almost hitting the full-year target of 8 million. Industrial production also posted a year-on-year increase of 2.6 per cent and 3.7 per cent month-on-month. Though some domestic economic indicators showed signs of improvement from June to July, export growth slowed again in August year-on-year. It may be too early to judge whether the economy has entered into a recovery phase.

Amid slowing economic growth, Mizuho Bank pointed out that the Vietnamese Government has implemented strong economic measures, including reducing the refinancing rate three times, from 6.0 per cent at the beginning of the year to 4.5 per cent, issuing Circular No. 10 to suspend some bank loan restrictions and support the financing of the real estate industry, requesting that commercial banks reduce customer loan interest rates, and cutting VAT rates from 10 per cent to 8 per cent from July 1 for most products and services.

Regarding the country’s stock market, Mr. Ban noted that the VN-Index continued to rise in the first half of 2022, together with the post-Covid economic recovery, to reach a high of 1,536 points. In the second half of 2022, the Index fell to a year low of 874 in mid-November due to distrust in the real estate industry following an additional policy rate hike from 4 per cent to 6 per cent by the SBV and the arrest of the Chairman of a major local real estate development company. However, funds have now returned to the stock market, due largely to the effects of lower interest rates. The VN-Index is expected to land at around 1,300-1,350 points by the end of 2023.

Other key points in the economy, according to Mizuho Bank, are M&A deals and the Vietnam Power Development Plan (PDP8). Manufacturing was the top area of focus in M&As, driven by venture capital investors from overseas. The banking, finance, and insurance industry ranked second, driven by market consolidation and the restructuring of Vietnam’s banking system. Real estate remained in the top 3 despite significant falls compared to the first half of 2022.

Regarding credit growth and other key drivers, Ms. Pham Thuy Duong, Research Associate Director at Dragon Capital noted that credit is still the backbone of the economy. However, credit growth was just 4.7 per cent in June; the lowest level for the past decade except for Covid-ravaged 2020.

Statistically, the second half of 2023 will see a recovery in credit growth. Dragon Capital projects 7.4 per cent in the period and 12.5 per cent for the year as a whole. Growth will be supported by monetary policy, rate cuts, measures to rescue the property market, and government spending.