Doing Business

Vietnam’s Economy at a Glance

Trường Lăng

June 21, 2023

Doing Business

Vietnam’s Economy at a Glance

Trường Lăng

June 21, 2023

In the face of the formidable challenges posed by global economic uncertainty, Vietnam’s economy finds itself amidst a period of hardship. However, both the government and businesses are unwavering in their determination to steer the nation’s economy through these turbulent times. Despite the trials encountered in the first half of the year, a renewed sense of optimism pervades the nation as the second half beckons with promise and potential. The revitalization of the tourism and service sectors emerges as a transformative force, casting rays of hope onto the economic landscape. With unwavering determination and concerted efforts, Vietnam remains poised to overcome obstacles and foster a resilient and prosperous economy.

Overview of Vietnam’s Economy in 2022 and Forecasts for 2023

GDP Growth

Based on the General Statistics Office, Vietnam’s GDP in 2022 reached US$409 billion. This figure is slightly higher at US$413.81 billion in the calculation of the IMF. With this, Vietnam ranks 5th in Southeast Asia and 37th in the world in terms of economic size. 

According to the latest World Economic Outlook report released by the International Monetary Fund (IMF), in 2023, Vietnam’s GDP is poised for a growth rate of 5.8%, securing its position as the second fastest-growing economy in Southeast Asia, alongside Cambodia. In light of this positive outlook, the IMF anticipates Vietnam’s GDP to reach approximately $449.09 billion by  the end of 2023.

Taking a different vantage point, the Asian Development Bank (ADB) offers a nuanced analysis of Vietnam’s economic landscape. After a remarkable GDP recovery of 8% of the country in 2022, the ADB predicts a slight moderation to 6.5% in 2023. This adjustment is attributed to various factors, including the reverberating effects of the worldwide economic recession, the tightening of monetary policies in developed nations, and the repercussions stemming from global geopolitical tensions. While this tempered growth projection indicates some challenges on the horizon, it does not diminish Vietnam’s overall economic trajectory.

Source: MPI

FDI Inflows

In 2022, the total newly registered capital, adjusted and contributed capital to purchase shares, and capital contribution of foreign investors in Vietnam reached nearly 27.72 billion USD.

Notably, the amount of disbursed capital reached a record of more than 22.4 billion USD, up 13.5% compared to 2021. This is the highest amount of foreign direct investment capital realized in the past 5 years.

Foreign Direct Investment (FDI) inflows continue to be identified as one of the pillars of Vietnam’s economic growth in 2023. According to the leaders of the Foreign Investment Department, FDI attraction in 2023 can reach US$36-38 billion, up 37% compared to the year 2022. 

Source: VGP News 

Inflation rate

According to the General Statistics Office, in 2022, core inflation increased by 2.59% compared to 2021, lower than the average CPI (increased by 3.15%), this reflects consumer price fluctuations mainly due to food prices, gasoline, oil, and gas increases.

The incessant rise in inflation since September 2022 has reached a turning point in January 2023, owing to waning consumer demand. This development is welcomed news for the nation’s financial stability. As April 2023 unfolded, Vietnam witnessed a remarkable drop in its annual inflation rate, sinking to a 12-month low of 2.81%, down from the previous month’s figure of 3.35%. This decline can be attributed to the downward trajectory of transport prices, primarily influenced by the fall in gasoline costs.

Buoyed by this positive trend, experts at ACB Securities offer reassuring insights, forecasting that there will not be a surge in inflation at least in the first half of this year and the government’s concerted efforts to maintain control over inflation will yield fruitful results, with the inflation rate expected to remain within the manageable range of 3-4.5%. This aligns with the government’s overarching goal of keeping inflation below the 4.5% threshold for the entirety of this year.

Source: Trading economics, General Statistics Office of Vietnam.

Vietnam 2023 Economic Outlook

Challenges Confronting Vietnam’s Economic Growth in 2023

As of now, Vietnam is facing a myriad of challenges as it strives to achieve its GDP growth target of 6.5% set by the National Assembly for 2023. The latest data from the General Statistics Office (GSO) paints a picture of a volatile economic recovery, placing immense pressure on the forthcoming quarters to meet the government’s socio-economic objectives for the year.

The socio-economic climate in the first quarter of 2023 unfolded against the backdrop of a global economy characterized by intricate fluctuations and instability. Although global inflation has somewhat subsided, it remains elevated, exerting its influence on the consumption patterns of key trading partners and subsequently impacting Vietnam’s economy. Furthermore, the early 2023 bankruptcy of certain banks in the United States and Europe has significantly eroded people’s trust in the banking system, while central banks continue to implement stringent monetary policies. Compounding these challenges are ongoing conflicts such as the situation in Ukraine, alongside disruptions in supply chains and escalating prices of essential raw materials. These factors collectively exert substantial pressure on the growth trajectory of Vietnam’s economy.

Economists within the country also highlight the persistent inflationary pressures, citing delays in the implementation of the recovery package and warning against the sustainability of inflation moderation in other countries. Moreover, businesses are grappling with increasing risks, driven by shrinking foreign market demand and the gradual drying up of cash flow following two years of the pandemic. Accessing capital has become particularly arduous for businesses, exacerbating their predicament.

Government’s Resilience in Rebuilding Vietnam’s Economy

To combat the volatility in both domestic and international markets, the government has proactively formulated various measures to stimulate economic growth. These initiatives encompass tax reductions, monetary policies, and actions aimed at alleviating the current challenges faced especially with the real estate market.

Recently, the National Assembly Standing Committee announced the tax reduction policy in the second half of 2023, starting from 1st July to reduce the value-added tax (VAT) from 10% to 8% with the applicable scope of goods and services as of 2022. The impact of reducing state budget revenue in 2023 is expected to be about VND 24 trillion. Additionally, The State Bank of Vietnam issued Decision No. 576/QD-NHNN dated March 31, 2023, on the maximum interest rate for short-term loans in Vietnam dong, accordingly, the maximum short-term lending interest rate in Vietnam dong of credit institutions for borrowers for a number of economic sectors and fields will be reduced from 5.0%/year to 4.5%/year. According to statistics of the State Bank, by the end of February 2023, the average lending interest rate for new loans has decreased by 0.43% /year compared to the end of 2022, with 22 commercial banks reporting reductions in their average lending interest rates. This strategic adjustment aims to stabilize Vietnam’s financial market and foster a more dynamic and efficient business environment.

In conjunction with the administrative measures outlined above, the government has also provided guidelines for banks to facilitate the rescheduling of loan repayments for real estate developers and businesses, among others. While the specifics of these forbearance proposals are still undergoing review, they signal the government’s commitment to supporting and nurturing the resilience of key sectors during these challenging times.

A Bright Spot on the Economic Landscape in 2023

Amid the global economic downturn and challenges in the domestic market, an optimistic projection was highlighted during the seminar “Update the world economic and financial outlook in 2023 and its impact on Vietnam,” jointly organized by the Ministry of Foreign Affairs and Standard Chartered Bank in March 2023. Standard Chartered Bank expressed its confidence in Vietnam’s economic potential, particularly emphasizing the revival of the tourism industry as a key driver of growth.

The second half of this year is likely to see China’s economy recover faster than expected. This should lead to an improvement in exports. The reopening of tourism will also help the service industry grow again. We believe in Vietnam’s strong growth potential in the medium term

Mr. Tim Leelahaphan, an economist in charge of Thailand and Vietnam, at Standard Chartered Bank.

Further reinforcing this positive outlook, the World Bank (WB) provided recommendations for reforms to harness the potential of Vietnam’s service sector in its March 2023 edition of the “Taking Stock” report titled “Harnessing the Potential of the Services Sector or Growth ” The report highlights the main driver of growth will be domestic demand, likely to be impacted by higher inflation estimates (average 4.5%) in 2023..

The service sector has already emerged as a cornerstone of Vietnam’s economy, accounting for 44.6% of GDP in 2019, up from 40.7% in 2010. WB senior economist, Dorsati Madani, highlights the pivotal role the service sector can play in achieving Vietnam’s sustainable economic growth and its aspiration to become a high-income economy by 2045. To unleash the full potential of the service sector, priority should be given to dismantling trade and foreign investment barriers, initiating reforms to enhance competition, and improving access to finance for domestic firms. Additionally, services that can catalyze growth in other industries, particularly manufacturing and processing, should be given due attention.

Final Thoughts

With an optimistic outlook for the second half of 2023, supported by the recovery of the tourism industry and a focus on maximizing the potential of the service sector, Vietnam stands poised to navigate its economic landscape with resilience and determination. By seizing opportunities, implementing strategic reforms, and aligning fiscal and monetary policies, Vietnam is positioning itself for sustainable growth and economic prosperity.

Investors looking for successful investment opportunities in Vietnam’s promising market can benefit greatly from Viettonkin’s consulting service. With a deep understanding of the Vietnamese market, regulatory landscape, and industry trends, Viettonkin can provide invaluable guidance and support for investors. From market research to legal assistance, our comprehensive services empower investors to make informed decisions and navigate the complexities of Vietnam’s business environment. Partnering with Viettonkin allows investors to unlock the full potential of their investments and capitalize on Vietnam’s thriving economy. Don’t miss out on this opportunity to maximize your investment success in Vietnam—choose Viettonkin for expert insights and strategic guidance.

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