The government on October 11 reported to the National Assembly Standing Committee (NASC) that the economy is expected to increase by about 8% this year, laying an important foundation for the country to carry out the 6.5-7% economic growth target set in its Socio-economic Development Plan for the 2021-2025 period.
The fourth session of the 15th NA, which will open on October 20 and last until November 15 in Hanoi, will see discussions about how to reach this 8% growth rate, which is backed by an uptrend of the economy since early this year.
According to the General Statistics Office (GSO), the Vietnamese economy has been bouncing back from a growth rate of 5.03% in Q1 to 7.72% in Q2 before soaring to an impressive 13.67% in Q3.
In the first nine months of the year, the economy expanded 8.83% against the 1.42% in the corresponding period last year, and only 2.12% in that of 2020 – representing the biggest 9-month climb in terms of rate in the 2011-2022 period.
In Vietnam, each percentage of growth would mean that as many as about 400,000 new jobs are generated.
These achievements have shown the government’ great efforts to drive the economy forward, and enterprises’ strong determination to overcome challenges and difficulties to stay afloat and continue development amid aftermath of the health crisis lingering.
Updated projections
“Vietnam’s economy is strongly bouncing back, promising a brighter outlook for 2022,” said Minister of Planning and Investment (MPI). “Almost all economic sectors are witnessing sturdy recovery.”
For example, the MPI calculated that in this year, the Vietnamese economy’s index of industrial production will expand 9-9.5%; the total goods retail and consumption service revenue will ascend 18.3%; and the gross agricultural output value will increase about 3%.
In the first nine months of 2022, the agro-forestry-fishery expanded 2.99% on-year – creating 4.04% of GDP, while the on-year growth rate of the industry and construction sector was 9.44% – accounting for 41.79% of GDP, and the on-year growth rate of service sector was 10.57% – holding 54.17% of GDP.
“Vietnam’s GDP growth in 2022 and 2023 will be among the highest in the Southeast Asian region as shown in many international organisations’ forecasts and assessments on the Vietnamese economic outlook,” stressed Minister and Chairman of the Government Office Tran Van Son.
“Moody’s, the World Bank, the International Monetary Fund(IMF), and the Asian Development Bank (ADB) have projected that Vietnam will achieve a GDP growth of 8.5, 7.2, 7, and 6.5%, respectively, this year,” he said.
On October 12, Standard Chartered Bank raised its Vietnam GDP growth forecast for 2022 to 7.5% from the previous 6.7% and for 2023 to 7.2 from 7% to reflect robust Q3 growth of 13.67% on-year. Q4 2022 growth is anticipated at 4%.
Eelier, right from May when the Vietnamese economy was showing big signals for recovery, S&P and Fitch Ratings ranked Vietnam as having a “stable” and “positive” outlook and the nation is recovering better than expected.
Meanwhile in late July, the International Monetary Fund (IMF) lifted Vietnam’s economic growth for 2022 from 6 to 7%, while reducing its projection for many other nations.
In June, Vietnam was the sole nation in the world that the World Bank raised growth forecast from 5.5 to 5.8% for this year. Then two weeks ago, the bank lifted this rate to 7.2%.
In the eyes of the World Bank, “Vietnam has been a development success story”. Economic reforms since the launch of doi moi in 1986, coupled with beneficial global trends, have helped propel Vietnam from being one of the world’s poorest nations to a middle-income economy in one generation. Between 2002 and 2021, GDP per capita increased 3.6 times, reaching almost $3,700. Poverty rates ($1.90 a day) declined sharply from over 32% in 2011 to below 2%.
“Thanks to its solid foundations, the economy has proven resilient through different crises, the latest being COVID-19. Vietnam was one of only a few countries to post GDP growthin 2020 when the pandemic hit,” the World Bank stated.
The ADB has also kept its favourable economic outlook for Vietnam as it forecasted that the country’s GDP will rise 6.5% in 2022 and 6.7% next year.
“Vietnam’s economy recovered faster than expected in the first half of 2022 and continues to grow amid the challenging global environment,” the ADB said in a report on Vietnam’s economic situation. “The steady recovery was supported by strong economic fundamentals and driven by a faster-than-expected bounce back of manufacturing and services.”
Global analysts Trading Economics has also predicted that Vietnam’s GDP growth will be 7.2% at the year’s end.
“Considering the first three quarters of the year, the GDP expanded 8.83% on-year, which was the highest increase of nine months in the period 2011-2022, as production and business activities gradually regained growth momentum, policies recovered, and the government's socio-economic development has brought into full play,” Trading Economics said.
Moody’s Investors Service on September 6 upgraded the Vietnamese government’s long-term issuer and senior unsecured ratings to Ba2 from Ba3 and changed the outlook to stable from positive.
“The upgrade to Ba2 reflects Vietnam’s growing economic strengths relative to peers and greater resilience to external macroeconomic shocks that are indicative of improved policy effectiveness, and which Moody’s expects to continue as the economy benefits from supply chain reconfiguration, export diversification and continued inbound investment in manufacturing,” Moody’s said. “The rating also reflects a sounder fiscal footing backed by contained borrowing costs, a conservative approach to fiscal policy and improved government liquidity, driven by the ongoing transition from external concessional borrowing toward longer-dated, low-cost domestic market financing.”
Lingering challenges
Trading Economics has warned that due to risks, in the long-term, the Vietnam GDP annual growth rate is projected to trend around 5% in 2023 and 6.10% in 2024.
The ADB underlined new challenges for Vietnam. Specifically, weaker global demand should slow exports. The dong’s depreciation is making the value of imports more expensive than exports, which is expected to result in a trade deficit in 2022. High global inflation, though gradually decelerating, and tightened financial conditions will continue to depress remittances. Because of all this, the current account is forecast to turn a deficit of 1.5% of GDP this year. A current account deficit, at 1.7% of GDP, is projected for 2023 on expectations of softer global growth.
“Risks to Vietnam’s economic outlook remain elevated. The global economic slowdown could weigh more heavily on exports than forecast, which would worsen the current account balance. Although aggressive interest hikes by the central banks of major economies have helped dampen global price pressures, an intensification of global geopolitical uncertainties could push up commodity prices, worsening inflation in Vietnam,” said the ADB. “A resurgence of COVID-19 infections is possible amid lower readiness in the health care system due to the recent resignations of many health care workers and shortages of medical equipment and drugs. A labour shortage would impede the fast recovery of services and the labour-intensive export sector in 2022. A failure to deliver public investment and social spending as planned could slow growth this year and next.”
The World Bank also underlined that to ensure stable growth, Vietnam’s the authorities should remain vigilant about inflation risks associated with food and core prices. Also, while fuel prices have softened recently, global fuel price movements are uncertain.
“Thus, incentivising alternative energy production and use would reduce the economy’s dependence on imported fuels and promote greener growth. Also, strengthening the social support system, including its registration, targeting, and disbursement systems would facilitate reaching affected citizens during such shocks,” said the World Bank.
For Moody’s, this firm has also underlined factors that could lead to a downgrade of Vietnam’s ranking.
“Moody’s would consider a downgrade of the rating as a result of a re-emergence of financial instability, leading to higher inflation, a rise in debt-servicing costs or a worsening of the external payments position. Such signs of stress could be related to the reversal of the current stabilisation in the debt and deficit trajectory, potentially as a result of a sizable crystallisation of contingent risks from either the banking system or state-owned enterprises,” Moody’s said. “Furthermore, evidence that a rise in geopolitical tensions disrupts Vietnam's access to critical manufacturing inputs or erodes export and foreign direct investment competitiveness would be negative for the rating.”
