Vietnam's economy sees glimmer of hope amidst challenges

Positive indicators of recovery

While first-quarter GDP growth stood at a modest 5.66 per cent, Can Van Luc, Chief Economist at BIDV, maintains confidence that the year's overall growth will achieve the targeted range of 6-6.5 per cent, as set by the National Assembly.

Luc points to several factors driving Vietnam's economic revival, including controlled inflation, marginal interest rate reductions, and stable exchange rates.

Vietnam's post-pandemic recovery is viewed favorably, with economic performance in the following quarter surpassing the preceding one.

Notable highlights from the initial two months of 2024 include a surge in foreign direct investment (FDI) inflows, reaching approximately $2.8 billion, marking a 9.8 per cent increase from the same period last year – the highest FDI realization in recent years.

Moreover, the purchasing managers' index has seen consecutive growth for two months, surpassing the 50 per cent threshold, indicating a marked improvement in the manufacturing sector.

Exports have also witnessed a resurgence, with a 19 per cent increase in the first two months of the year, maintaining a trade surplus. Key markets are showing signs of recovery, driving a gradual uptick in export orders.

Aside from these macroeconomic bright spots, Luc asserts that traditional growth engines for Vietnam's economy are displaying signs of resilience.

Agriculture, industry, construction and services sectors are all showing encouraging signs, with agricultural exports rebounding and industrial production picking up momentum.

According to Luc, Vietnam's real estate market is expected to outpace China's in terms of recovery pace, owing to a significant undersupply in Vietnam compared to China's oversupply.

Businesses, having weathered the storm of financial obligations, are now seeing improved access to capital and investment resources. Legal hurdles are being addressed, and institutional frameworks are being refined, albeit gradually.

Despite a subdued first-quarter economic performance, the potential for robust growth in subsequent quarters remains promising.

"Even with a first-quarter GDP growth of 5.66 per cent, this is still a positive sign compared to the just-over-3 per cent growth in the same period last year," Luc noted.

Similarly, Dr. Vo Tri Thanh, a member of the National Monetary Policy Advisory Council, believes that recent positive economic indicators bode well for Vietnam's economic trajectory, with financial conditions gradually improving.

Last year, bank interest rates witnessed significant reductions, inflation remained subdued at 3.2 per cent and macroeconomic fundamentals remained stable.

The key lies in policy reforms

According to Thanh, Vietnam's GDP growth rate for the year could range between 5.5 per cent and 6.3 per cent, thanks to various growth drivers, including resilient exports and recovering industrial production.

To achieve sustainable economic recovery, Thanh underscores the importance of policy stability, low inflation, financial system safety, and resolving challenges in the corporate bond and real estate markets.

In the face of both domestic and global challenges, Thanh emphasizes that Vietnam's economic outlook for 2024 hinges on policy efforts and reforms.

"While challenges lie ahead, even amidst storms, we have reasons to anticipate a more positive outcome for Vietnam's economic development in 2024.

With steadfast determination, Vietnam aims to establish stronger fundamental foundations – institutionally, infrastructurally, and in terms of human resources – to propel development in the coming period," Thanh concluded.