9:33:31 AM | 4/22/2024
The Asian Development Bank (ADB) has maintained its earlier growth projection for Vietnam this year despite lingering uncertainties in the external environment. Vietnam’s economy is expected to grow at 6% in 2024 and 6.2% in 2025.
In Q1 2024, manufacturing grew by 6.8%, boosting industrial growth to 6.3%
According to the Asian Development Outlook (ADO) April 2024 released on April 11, 2024, subdued global demand and high international interest rates impacted Vietnam’s growth in 2023. However, a rapid switch to an accommodative monetary policy and sizable public investment were among the key measures taken to sustain a growth recovery in 2023.
Mr. Shantanu Chakraborty, ADB Country Director in Vietnam, said Vietnam’s economy is expected to grow at a solid pace this year and the next despite a challenging global environment. However, global geopolitical uncertainties and domestic structural fragilities could impact the outlook. Therefore, policy measures in 2024 will need to combine short-term growth support measures to strengthen domestic demand with long-term structural remedies to promote sustainable growth.
According to ADB, Vietnam’s economy is expected to grow at 6% in 2024 and 6.2% in 2025. A relatively broad- based growth restoration in export-led manufacturing, services, and stable agriculture would make the gradual recovery possible. Positive inflows of FDI and remittances, a sustained trade surplus, continued fiscal support, and a substantial public investment program would also stimulate growth. For the first quarter ( Q1) of 2024, the economic growth accelerated to 5.7% from 3.4% a year ago. However, downside risks from global geopolitical uncertainties and exposed domestic structural fragilities could impede growth.
Mr. Nguyen Ba Hung, chief economist of ADB Vietnam Resident Mission said: The gradual return of new orders and consumption revived manufacturing growth at the end of 2023, with the trend gaining further momentum in 2024. Manufacturing expanded at 6.8% in Q1 2024, compared with the contraction of 0.5% a year ago, contributing to industrial growth of 6.3%. Lower interest rates, fiscal measures supporting growth, and the recently improved land-related legal framework should support construction. However, slow global growth and still high global policy rates could weigh down export-led manufacturing growth.
Given limited monetary policy space, fiscal and investment spending will be key for growth in 2024. A comfortable fiscal position with a mild budget deficit and a low public debt-to-GDP ratio provides sufficient fiscal space to support growth. The ongoing value-added tax reduction program was extended until June 2024 and could be extended further to the end of 2024. A sizable amount of public investment, equivalent to US$27.3 billion, has been programmed for disbursement this year. Together with disbursements from 2023, this additional public investment would significantly stimulate growth. A gradual revival of export-led manufacturing would support FDI. Registered FDI increased by 13.4%, and disbursed FDI went up 7.1% in Q1 2024 compared with the same period last year. Accelerated public investment and improved business conditions can spur private investment in 2024.
Notably, softening global demand will limit the trade recovery in 2024. Global growth is expected to bounce back slower than expected, which could also slow Vietnam’s export recovery. Exports in Q1 2024 grew by 17% while imports increased by 13.9%. ADB forecast that imports and exports will grow modestly by 4-4.5% this year and next year as external demand gradually recovers. Renewed manufacturing activity would push up imports of production inputs. As a result, the current account surplus is projected to be 1.5% of GDP in 2024.
Hung said that Vietnam’s economy will likely grow slightly faster in 2024 than in 2023 although risks are tilted toward the downside. Softened global demand caused by slow economic recovery and continued geopolitical tensions would slow the full recovery of Vietnam’s export-led growth. Delayed normalization of interest rates in the U.S. and other advanced economies would also impede the monetary policy shift to supporting growth.
Therefore, according to Hung, fiscal measures for supporting growth and public investment would ultimately become the key policy options to reignite growth. More importantly, the growth slowdown has heightened the risks of structural fragilities, especially excessive reliance on FDI-led export manufacturing, weak linkages between manufacturing and the rest of the economy, the incipient capital markets, overreliance on bank credit, and regulatory barriers to business. Policy measures in 2024 would therefore need to combine short-term growth support measures with long-term structural remedies to promote sustainable growth.
By Anh Mai, Vietnam Business Forum
Vietnamese
