Vietnam’s economy steadfast amid the headwinds
Vietnam’s economy steadfast amid the headwinds
The government and people of Vietnam well deserve their achievement of the highest economic growth record in more than a decade. Despite global economic concerns, inflationary pressure, currency depreciation and other current challenges, Vietnam’s economy grew at 8.02 per cent in 2022, according to the General Statistics Office. That was higher than the government’s initial target of 6-6.5 per cent, and Vietnam remains one of the fastest-growing economies in the region.
Global economic prospects have worsened. Inflation continues to accelerate in most economies on high global energy and food prices. Global oil, gas, and food prices have come down from their peaks earlier this year but remain higher than in early 2022. Tightening monetary and financial conditions will continue to drag on economic activity in the United States and the Eurozone in 2023, with the latter likely to experience a technical recession.
Developing Asia’s recovery is expected to continue but lose some steam. Headline inflation in developing Asia stood at 5.6 per cent in September, up from 3 per cent at the start of the year, reflecting a consistently upward trend across the region’s economies.
Central banks continue to raise policy rates to curb inflation and safeguard financial stability. This has tightened financial conditions in the region, which have also been greatly influenced by aggressive rate hikes in the US and Europe.
The Asian Development Bank has revised down 2022 GDP growth in developing Asia marginally to 4.2 per cent, reflecting downward revisions for East Asia and, particularly, in China, where pandemic-induced disruption and unresolved problems in the property market have weakened growth.
By contrast, the bank raised the economic growth forecast for Southeast Asia in 2022 up to 5.5 per cent thanks to higher forecasts for Malaysia, the Philippines, Thailand, Timor-Leste, and Vietnam after surprisingly robust performances in the last quarter due to stronger consumption, trade and services, and tourism.
In Vietnam, economic activities recovered faster than expected following the removal of pandemic restrictions and the achievement of nationwide vaccine coverage. A strong performance across sectors boosted the country’s economy, and growth rebounded to 8.8 per cent in the first three quarters and continued to expand by the end of 2022.
Exports grew at 13 per cent on-year, and imports grew at 10 per cent on-year, making a trade surplus of $10.6 billion in the first 11 months of last year. Disbursements of foreign direct investment remained strong, increasing by 7.8 per cent on-year, estimated at $7.7 billion, the highest disbursement in five years.
Normalised mobility boosted domestic tourism, reaching nearly 100 million domestic visitors in the first eleven months of 2022, higher than the pre-pandemic period. The domestic consumption in November was up 2.6 per cent from the previous month and up 17.5 per cent over the same period last year.
As Vietnam’s GDP growth is strong, inflation and other factors affecting the economy are much less severe than in neighbouring countries. Vietnam’s public debt-to-GDP ratio was 43 per cent, which is relatively low, giving the country solid macroeconomic foundations.
Many other countries in the region are not holding up nearly as well as Vietnam to these global challenges and economic shocks. However, headwinds have been strengthening since the last quarter of 2022. Though trade continues to expand, key economic indicators have shown weakening global demand for the country’s exports.
The number of new orders is likely to drop early this year. Employment could also fall due to declining economic activities. Recent monetary tightening, irregularities in the corporate bond market and slow disbursement of public investment have tightened liquidity for economic recovery.
High inflation in the US and other advanced economies, though slightly abating in November, could prolong the current monetary tightening cycle. The appreciating US dollar resulted from the Fed’s monetary tightening, which could continue to put depreciating pressure on the Vietnamese currency, creating inflationary pressure, and putting pressure on foreign reserves.
Growth deceleration in China will also impact Vietnam’s economic prospects in 2023. The worsening situation with Russia and Ukraine could renew surges in commodity prices, further stoking global inflation and inducing further monetary tightening. Against this background, our growth forecast for Vietnam in 2023 has been adjusted from 6.7 to 6.3 per cent.
Global inflation remains uncertain. Supply chain disruptions by continued geopolitical tensions and rising demand for energy from eased mobility restrictions in China could push up global commodity prices. The policy responses for Vietnam need to strike a dedicated balance between containing inflation and maintaining economic growth and, at the same time, ensuring stability in the financial sector.
In 2022, the government succeeded in managing flexible monetary policy and prudent fiscal policy to ensure macroeconomic stability. There should be greater and more efficient coordination between fiscal and monetary policy in 2023.
While monetary measures have tightened to stem imported inflation, targeted fiscal support is desirable to support businesses and strengthen social protection, given the increasing negative impact on the labour force due to the global economic downturn.
There are many reasons for optimism on Vietnam’s economic prospects in 2023. Looking forward, economic growth in 2022 was on par with pre-pandemic growth levels, despite a challenging global economic environment and a volatile stock market. Investment from overseas was strong and has even picked up. There is no doubt that Vietnam’s economic prospects for the medium and long term remain positive.
Foreign investors think long-term when they make their investments, and we noted that there is continued strong interest in Vietnam as a destination to place funding, which clearly shows a long-term vote of confidence in the country. With sound economic fundamentals and strong leadership, we strongly believe that Vietnam will be able to brace the headwinds of 2023 and beyond.
