Citi forecasts positive growth trajectory for Vietnam in H2

Citi forecasts positive growth trajectory for Vietnam in H2

Citi forecasts Vietnam's economy is expected to sail through the challenges and maintain a positive growth trajectory in the second half of 2023.

Vietnam's economy has shown progress in the second quarter of 2023, with GDP growth accelerating to 4.1 per cent on-year, highlighting the nation's resilience.

The services sector and tourism have played vital roles in this recovery, contributing significantly to two-thirds of the on-year GDP growth. Encouragingly, there are signs of improvement in the manufacturing sector, potentially fuelled by fiscal measures, and the construction industry is also showing signs of life.

The countercyclical fiscal stimulus continues to gain traction, paving the way for a robust economic recovery. Government spending is on the rise, with the potential to bolster banking sector liquidity and strengthen monetary policy transmission.

Notably, the government's efforts to address capital spending bottlenecks have borne fruit, as realised by investment capital from the state budget saw significant growth. This bodes well for future capital spending, creating opportunities for further economic expansion.

The gradual revival of Vietnam's tourism industry has been a driving force behind the nation's economic recovery, with international tourist arrivals steadily increasing. Flight seat capacity is also picking up, bolstering the tourism sector's resurgence.

Though some challenges persist, such as a decline in final consumption and export growth, it is anticipated that the drag from merchandise exports will ease in the second half of 2023, as external demand stabilises for key exports.

While the real estate sector faces headwinds, Vietnam's resilient economy has the potential to overcome these challenges over time. Heatwaves caused by El-Nino brought additional difficulties, including power shortages, which affected industrial operations. However, policymakers are proactively addressing these challenges to ensure a positive economic outlook.

Despite adjustments to GDP growth forecasts for fiscal year 2023 due to uncertainties like power shortages, the outlook for 2024 remains relatively positive, with GDP growth projected between 5.5 per cent and 6 per cent.

As the second half of 2023 unfolds, Vietnam's economic performance will be influenced by various factors. Continuing the recovery of the tourism industry, stabilising the manufacturing sector, and addressing real estate challenges will be crucial for maintaining growth.

Policymakers and businesses are committed to fostering an environment conducive to economic recovery and growth. Vietnam's resilient economy holds the potential to navigate hurdles and continue on a positive growth trajectory.

vir