Growth remains high for 2024-2025

Growth remains high for 2024-2025, illustration photo/ Source: Shutterstock

Prime Minister Pham Minh Chinh last week issued a special resolution addressing the aftermath of Typhoon Yagi, focusing on providing more assistance for individuals and businesses.

“One of the key priorities now is to ensure sufficient food, clean water, indispensable items, and accommodation for those affected by the typhoon,” said PM Chinh. “All production and business activities must be restored as soon as possible, with efforts concentrated on achieving GDP growth of about 7 per cent this year.”

According to rough estimates from the Ministry of Planning and Investment, the typhoon has caused economic losses of about 0.15 per cent of GDP, equivalent to $1.66 billion. GDP growth is projected to drop by 0.35 per cent on-year in Q3 and 0.22 per cent in Q4 compared to a scenario without the typhoon.

For the entire year, growth is expected to decrease by 0.33 per cent in the agro-forestry-fishery sector, 0.05 per cent in the industrial and construction sector, and 0.22 per cent in the services sector.

The northern city of Haiphong and the nearby province of Quang Ninh are among the worst-hit areas, with estimated economic losses of $458.3 million and $958.3 million, respectively.

The economic growth of localities such as Haiphong, Quang Ninh, Thai Nguyen, and Lao Cai is expected to drop by over 0.5 per cent on average this year.

Typhoon Yagi has affected 26 provinces and cities in northern Vietnam and Thanh Hoa province, areas that contribute over 41 per cent of GDP and are home to 40 per cent of the national population. As of late last week, reports indicated more than 350 people dead or missing, along with over 2,000 injuries.

Approximately 257,000 houses, 1,300 schools, and numerous offices and medical facilities have had their roofs blown off or otherwise damaged. Nearly 70,000 houses have been flooded, while over 260,000 hectares of rice and crops have been destroyed.

PM Chinh has instructed ministries, agencies, and provincial authorities to provide more robust support for businesses and ensure the fulfilment of all 15 key socioeconomic targets for 2024. “All efforts must be concentrated on achieving higher growth,” PM Chinh said. “The economy must grow at an accelerated pace in 2024 and 2025 to meet our goals for 2021-2025.”

The National Assembly (NA) has set an economic growth target of 6.5-7 per cent for this period, higher than the 5.9 per cent average during 2016-2020. The government expects GDP growth of around 7 per cent this year, with even higher growth anticipated in 2025.

However, even if the government’s growth projections are met, the average growth rate for the five-year period would only be 5.93 per cent. Even with growth rates of 8 per cent in 2024 and 2025, the five-year average would still be only 6.33 per cent, falling short of the NA’s target.

Vietnam’s total GDP last year stood at an estimated $430 billion. A 1 per cent increase in GDP translates into an additional $4.3 billion and around 300,000 new jobs.

The government has instructed the State Bank of Vietnam (SBV) to stabilise the exchange rate and lower lending rates to facilitate businesses’ access to credit. The government is targeting credit growth of about 15 per cent for the year.

SBV figures indicate that the credit growth rate stood at just 7.75 per cent as of earlier this year.

Deputy Governor of the SBV Dao Minh Tu explained that credit growth was negative in the first quarter of 2023, at minus 2 per cent, before rebounding in the subsequent months.

“By this time last year, the rate had reached 5.33 per cent, and the full-year rate for 2023 hit 13.71 per cent,” Tu said. “We are confident of achieving a 15 per cent credit growth rate this year.”

He added that the SBV has also directed commercial banks to continue lowering lending rates.

“Current statistics show a positive trend in lending rates. The average rate for new loans is now 6.23 per cent, down 0.86 per cent from the end of last year,” Tu said. “Deposit interest rates now average 3.84 per cent, up 0.23 per cent from late last year.”

Tu also revealed that the government would provide further financial support for businesses in the near future. “We have already launched a preferential credit package worth $5.83 billion for businesses, including a fiscal policy of $1.25 billion for aquatic product exporters. The prime minister has called for even more assistance, and we plan to expand the package by an additional $2.1-2.5 billion,” Tu said. “The lending rate from this package will also be reduced from 2 to 3 per cent for loans related to social housing purchases. The borrowing period will be extended from the current 5 years to 10.”

The economy grew by 5.87 per cent in Q1 and 6.93 per cent in Q2, with an overall growth rate of 6.42 per cent for the first six months of the year. The official growth rate for the first nine months of 2024 will be announced on October 6.

According to the Asian Development Bank, Vietnam’s growth outlook for 2024 and 2025 is expected to stand at 6 and 6.2 per cent, respectively, driven by a strong first-half performance in 2024.

Meanwhile, the International Monetary Fund and World Bank have projected respective growth rates of 5.8 and 5.5 per cent for 2024, citing ongoing challenges such as geopolitical tensions and protectionist trade policies in key markets.

UOB forecasts Vietnam's economic growth to continue, boosted by trade and FDI Vietnam's economy is expected to maintain strong growth throughout 2024, supported by rising trade activity and increasing foreign direct investment, while favourable demographics and solid macroeconomic fundamentals underpin its long-term prospects in ASEAN, according to UOB.