Issues acknowledged in growth mission

Issues acknowledged in growth mission

The International Monetary Fund (IMF) last week released the results of its policy consultation with Vietnam, saying that economic growth is projected to recover to 6.1 per cent in 2024, supported by continued strong external demand, resilient foreign investment, and accommodative policies. “Domestic demand growth is expected to recover gradually as corporates navigate through high debt levels, while the real estate sector will only fully recover over the medium term. Inflation is expected to hover around the State Bank of Vietnam’s target of 4-4.5 per cent this year,” the IMF said.

The World Bank also noted that Vietnam’s economy is forecast to grow by 6.1 per cent in 2024 and rising to 6.5 per cent in 2025-2026.

“This projection assumes an easing of manufacturing exports growth in the second half of 2024, after a 16.9 per cent rebound growth on-year in the first six months of this year, and the expected moderation of global demand in 2024, in particular from the US, Vietnam’s largest export market,” the World Bank noted.

According to Vietnam’s General Statistics Office, in the first eight months of 2024, the index of industrial production is estimated to have increased 8.6 per cent on-year.

The IMF stated that Vietnam’s growth prospects also relied on remaining an attractive foreign direct investment (FDI) destination amid global trade tensions. “The FDI-based exports have been, and are expected to remain, a key pillar of the growth strategy,” the IMF said.

Total eight-month export turnover is estimated to have hit $265.44 billion, of which foreign firms earned $191.2 billion (including crude oil exports), up 14 per cent and accounting for 72.1 per cent of the total.

In the first nine months of this year, total registered FDI into Vietnam is reported to have reached nearly $25 billion, up by more than 11.6 per cent as compared to the same period last year. Many global groups have committed and materialised their investment plans, making Vietnam a major manufacturing base in their global manufacturing chains.

However, the IMF also underlined that the outlook remains uncertain, with elevated downside risks. Specifically, weaker than expected external demand in the US and China, existing regional conflicts in Ukraine and the Middle East, and volatility in commodity prices could disrupt the recovery. Other risks include natural disasters and other negative effects from climate change. What is more, higher-for-longer global interest rates along with accommodative monetary policy could accelerate depreciation, leading to inflation pressures and weaker consumption.

In the first eight months of this year, nearly 110,800 enterprises were newly established in the period registered at $41.45 billion. However, the total number of businesses with halted operations and stopped performance and those waiting for completing dissolution procedures reached about 135,300. On average, over 17,900 businesses left the market every month.

The World Bank also pointed out some domestic downside risks. If macroeconomic stability were to weaken, consumer confidence could erode further, affecting consumption and investment. The real estate market recovery could take longer than expected, adversely impacting private sector investment, an important contributor to economic growth.

“If the financial sector’s asset quality were to weaken further, bank lending capacity could be undermined,” the World Bank said. “As one of the world’s most vulnerable countries to climate change, increasingly intensifying natural disasters pose additional downside risks.”

Energy supply shortages could also hamper the growth of manufacturing exports, as the country remains exposed to heatwaves affecting hydropower plants in northern Vietnam, although the planned completion of a 500kV transmission line across the country in the summer of 2024 could reduce this risk, the World Bank added.

Shantanu Chakraborty, country director for Vietnam Asian Development Bank Vietnam’s economic recovery in the first half of 2024 was impressive, with GDP growth of 6.4 per cent compared to the same period last year. Growth was driven by accommodative monetary and fiscal policies, along with the resurgence of exports and manufacturing. More recent data for July and August have also pointed towards strong performance of the external sector, while the domestic side is still struggling. For the remaining months of the year, Vietnam can maintain its growth momentum through continued trade recovery in export-led manufacturing and positive inflows of foreign direct investment. Efforts to restore services, stabilise agricultural production, and revive domestic consumption will also be crucial, with potential upside. The Asian Development Bank maintains its projection for the economy to grow at 6 per cent this year, with a further increase to 6.2 per cent growth in 2025. Inflation is expected to remain moderate at 4 per cent in both years, despite ongoing pressures from geopolitical tensions and disruptions in global supply chains. Although Vietnam’s economy is expected to post solid growth this year and improve to a slightly higher pace next year, several downside risks could slow the growth momentum. Externally, subdued global prospects due to escalations in geopolitical tensions and election outcomes in major economies could lead to trade fragmentation, hampering further external demand, and affecting exports, manufacturing activity, and employment. Domestically, Vietnam will need to boost business activities through more effective policies and increased public investment to support the economy.

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IMF predicts Vietnam's economic growth to reach 6.1 per cent in 2024 Vietnam's economic growth is projected to recover to 6.1 per cent in 2024, supported by continued strong external demand, resilient foreign direct investment, and accommodative policies, according to International Monetary Fund (IMF).