Vietnam relies on exports, investment, and consumption for growth

Economic growth in the second quarter reached 4.14%, making GDP growth in the first 6 months of 2023 at 3.72%, much lower than the 6.46% growth of the first half of 2022, according to data from the General Statistics Office.

The figures show that many businesses have exhausted due to domestic and overseas economic volatility. The real estate market remains dismal, hurting allied industries including construction and building material production. Businesses are less optimistic about the economy. Consumers save money and reduce non-essential purchases.

To achieve the growth target of 6.5%, the growth in the third quarter must be at least 7.4% and the fourth quarter must be 10.3%. "These are two very challenging numbers in the context that from now until the end of the year, there are more difficulties than advantages," admitted Mr. Tran Quoc Phuong, Deputy Minister of Planning and Investment.

UOB Bank expects Vietnam's economy to struggle to reach the Bank's 6% growth rate after a weaker-than-expected second-quarter rebound. UOB attributed this disappointing growth to manufacturing activities and decreased external demand. Since 2022, shipments have fallen by around 12%. Due to global economic uncertainty, tighter credit conditions, and a frozen local real estate market, private investment and FDI struggled in the first half of 2023.

According to experts from VNDirect, a series of supportive policies issued in the past time will contribute to gradually removing the current bottlenecks of the economy. These are the bottlenecks on corporate bonds, eliminating the risk of increasing bad debts, improving credit growth prospects...

Removing bottlenecks boosts growth. External issues still hinder Vietnam's economic recovery. Thus, the high-interest rate environment, COVID-19 epidemic, and Russia-Ukraine conflict will likely continue to plague the global economy in the second half of 2023 and 2024. Ukraine and credit restrictions owing to US/European banking sector turmoil. Thus, most research institutions foresee a minor global economic rebound in 2024.

In the second half of 2023, fiscal easing and dropping domestic interest rates will boost Vietnam's economy. A UOB expert claimed that domestic sectors have fared well, especially with recent good measures like decreasing base interest rates and value-added tax (VAT), but these measures are not adequate for the closing months of the year. Manufacturing and overseas commerce must recover to boost economic development.

“The State Bank of Vietnam has been leaning towards a looser policy and is likely to continue to lower interest rates in the third quarter,” the UOB report said in the context of weak export activity, which is likely to affect domestic demand, the US Federal Reserve's pause in interest rate hikes in June and a possible rate cut in 2024, as well as confidence in the VND/USD exchange rate to be stable despite the waves previous interest rate cut.

“The outlook for the third and fourth quarters will be better thanks to the strong recovery of growth drivers such as exports, consumption, and consumption. public use and investment,” said Economist Vo Tri Thanh, Director of the Institute for Brand Strategy and Competition. In the context of private sector investment facing many difficulties, attracting foreign direct investment is also an important driving force contributing to overall growth.

VNDirect's report also stated that the main supporting factors for the economy from now until the end of the year are: (1) The Government implements strong expansionary fiscal policy to promote growth; (2) Lower lending rates help stimulate private consumption and investment; (3) International tourists continue to recover, especially from China; and (4) Vietnam's export orders of agricultural and industrial products may recover from the fourth quarter.

With stronger monetary support, we expect fourth-quarter growth to turn around. HSBC's study expects the State Bank of Vietnam to decrease interest rates by 50 basis points in the third quarter, bringing the operating interest rate to 4%. HSBC specialists also warned that income restrictions limited the "package" fiscal rescue program.