Top growth goal tough nut to crack

Short-term measures are useful, but long-term structural reforms can boost growth and investment, photo Le Toan

Shantanu Chakraborty, country director for Vietnam at the Asian Development Bank (ADB), said that the Vietnamese economy will continue seeing massive challenges until the year’s end and even beyond.

“The nine-month economic growth remained relatively low due to slow-paced economic growth in China and many key markets of Vietnam, affecting Vietnam’s industrial production and exports,” Chakraborty said while launching the ADB’s Asian Development Outlook for September on Vietnam’s economic performance over a week ago in Hanoi. “This would mean it is very hard for Vietnam to reach its desired economic growth goal of 6-6.5 per cent this year.”

Vietnam’s economic growth is expected by the ADB to slow down to 5.8 per cent in 2023 and 6 per cent in 2024, compared to the ADB’s April forecast of 6.5 and 6.8 respectively, mainly due to weak external demand. The report also highlighted significant risks to the outlook. Internally, slow disbursements of public investment and structural weaknesses in the real economy are the main downside risks to the economy.

Externally, a substantial slowdown in global growth and weak recovery in China remain risks to the economic outlook. Sustained high interest rates in the US and Europe and a stronger US dollar may lead to further challenges to the recovery of external demand, and weaknesses in the VND exchange rate.

Vietnam’s economy grew 4.24 per cent on-year in the first nine months of this year. In which, the agro-forestry-fishery sector expanded 4.43 per cent, while the on-year rates of the industry and construction sector and the service sector were 2.41 and 6.32 per cent, respectively.

Under the Ministry of Planning and Investment’s updated economic growth scenarios reported last week, the whole-year growth rate will be about 5 per cent, meaning an on-year 7 per cent growth for Q4 is needed, in the least-desired scenario.

Under the second scenario, the entire-year growth will be about 5.5 per cent, meaning an on-year growth of 8.8 per cent for Q4. Meanwhile, under the third scenario, the most optimistic one, the economy will grow 6 per cent this year, meaning the rate for Q4 must be 10.6 per cent – a challenging target as the rate for Q3 is only 5.33 per cent.

In the first nine months of the year, the added value of the industrial sector increased only 1.65 per cent on-year, in which that of the manufacturing and processing sector expanded merely 1.98 per cent.

According to the International Monetary Fund (IMF), though the economy is gradually recovering, such a growth rate would mean it is hard for the government to reach its set economic growth goal.

“Economic growth is projected to bounce back in the second half of the year. After a weak first half, growth in 2023 is expected to accelerate and reach 4.7 per cent for the year - supported by a rebound in exports and expansionary (especially fiscal) policies,” said the IMF’s Executive Board last week after it had concluded a policy consultation with Vietnam.

However, the board also underlined that this 4.7 per cent growth level may be achieved assuming that the real estate turbulence is contained, and exports and credit growth pick up gradually in the second semester and in 2024.

According to the World Bank, a challenging external environment and weaker domestic demand is leading to a slowdown in economic growth in Vietnam, with an increase in the number of enterprises kicked out of the market. However, the economy will pick up pace over the second half of this year, and the following years.

“Vietnam’s economy is being tested by internal and external factors. To boost growth, the government can support aggregate demand through effective public investments,” said Carolyn Turk, World Bank country director for Vietnam. “Beyond short-term support measures, the government should not lose sight of structural institutional reforms as they are imperative for long-term growth.”

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