ADB forecasts 6 per cent growth for Vietnam

April 12, 2024 | 17:17
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According to the Asian Development Outlook released by the Asian Development Bank (ADB) on April 11, slowing global demand and high international interest rates hampered Vietnam’s growth last year, yet Vietnam's economy is expected to grow 6 per cent in 2024 and 6.2 per cent in 2025.
ADB forecasts 6 per cent growth for Vietnam

A timely switch to an accommodative monetary policy to support growth was among the key measures taken for the economy to move back on the path to recovery.

A relatively broad-based growth restoration in export-led manufacturing, services, and stable agriculture would make the gradual recovery possible. Positive inflows of foreign direct investment and remittances, a sustained trade surplus, continued fiscal support, and a substantial public investment programme would also stimulate growth.

For the first quarter of 2024, economic growth accelerated to 5.7 per cent from 3.4 per cent a year ago. However, downside risks from geopolitical uncertainties and exposed domestic structural fragilities could impede growth.

The gradual return of new orders and consumption revived manufacturing growth at the end of last year, gaining further momentum into 2024. Lower interest rates, fiscal measures supporting growth, and the recently improved land-related legal framework should support construction. However, slow global growth and still high global policy rates could weigh down export-led manufacturing growth.

Low domestic interest rates, fiscal policy measures, and wage increases will spur consumption-led services this year. Retail sales in the first quarter were 8.2 per cent higher than the same period in 2022. Revived economic activity, though slow, will elevate logistic services, while a liberalised visa policy will likely boost tourism. Overall, services are forecast to expand by 7.7 per cent for the year.

Monetary policy will pursue the dual objectives of price stability and growth, even as policy space is limited. The expected slowdown in the global economy in 2024 could tame global oil prices and consequently ease inflationary pressure. Average inflation for the first quarter slowed to 3.8 per cent from a high of 4.2 per cent last year.

The US Federal Reserve expects to cut interest rates this year and external inflation will continue to cool, though more gradually than expected. Such rate cuts would help relieve the pressure on the VND. However, the heightened risk of non-performing loans–which peaked at an estimated 4.6 per cent of all loans outstanding at the end of 2023 compared with 2 per cent in 2022–would reduce the prospect for additional monetary easing. The newly amended Law on Credit institutions effective from July will also better monitor lending activities.

The ADB noted that Vietnam's economy will likely grow slightly faster this year, although risks are tilted towards the downside. Softened global demand caused by slow economic recovery and continued geopolitical tensions would slow the full recovery of Vietnam’s export-led growth.

Delayed normalisation of interest rates in the US and other advanced economies would also impede the monetary policy shift to one supporting growth. As a result, positive fiscal measures and public investment would ultimately become the key policy options to reignite growth.

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By Thanh Van

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