Enterprises have yet to escape hardship
According to the General Statistics Office, the growth of gross domestic product (GDP) reached 4.14% in the second quarter of 2023 and 3.72% in the first half of 2023. These are the lowest year-on-year growth rates in more than a decade, just higher than GDP in the second quarter and the first half of 2020 (0.34% and 1.74% respectively), due to the outbreak of the COVID-19 pandemic.
Although the industrial sector had positive changes in the first six months of this year with 1.56% growth, temporarily ending the negative growth in the first quarter of the year, the added value of this sector only reached 0.44% over the same period last year. In which, the processing and manufacturing (which is the driving force of exports) only expanded by 0.37%, the lowest level over the same period in the past 10 years.
It can be seen that the GDP growth rate of 3.72% in the first half of the year is much lower than the plan set out in Government Resolution No. 01/NQ-CP of 6.2%. The industry-construction sector only advanced by 1.13%, while the scenario in the Resolution was 6.7%.
According to Dr. Le Duy Binh, Director of Economica Vietnam, the data for the second quarter of 2023 showed that the economy was less difficult than the previous quarter (GDP growth in the first quarter was 3.32%) but low growth remained. Despite the trade surplus, exports continue to decelerate, showing that the global economy, especially countries importing Vietnamese goods, has not completely recovered.
“In the next quarters, the situation may not get worse, but there are currently no signs that the economy will break through and reverse the current slow growth trend,” Binh said.
Several international organisations have downgraded Vietnam’s 2023 GDP growth forecast from 6.5-7.5% to about 4.7-5.5%. Binh said this growth is not too low compared to that of other countries in the region and the world. To achieve the target of 6.5% growth for the whole year, the remaining two quarters must achieve a growth of 9-10%, which is quite a challenging goal.
The general difficulties of the economy have severely affected businesses. In the first six months of 2023, the country recorded about 100,000 businesses withdrawing from the market, an average of 16,000 businesses every month.
In the first half of this year, Hanoi saw more than 43,000 applications for unemployment benefits, up 32% over the same period last year, even higher than during the COVID-19 pandemic. Dong Nai province, home to many industrial parks and export processing zones, also reported 28,000 workers, who applied for withdrawal of social insurance in the first five months of this year.
At the meeting of Thanh Hoa Provincial People’s Council on July 11, Chairman of the Provincial Business Association Cao Tien Doan shared that never before has the business community struggled to face many challenges like today.
After more than two years of being severely affected by the pandemic, many businesses that had just begun to recover were immediately closed due to new regulations on fire prevention and fighting. Some businesses tried to overcome such barriers to return to normal business, but they continued to experience sudden and continuous power outages.
In addition, there are challenges due to the complicated economic-political situation in the world, increasing inflation, decreasing the number of orders, high-interest rates, stagnant capital flow for production and business, and difficulties in accessing some support policies.
More room for monetary policy
At the Government’s online conference with localities and the Government’s regular meeting in June 2023 held on July 4, Minister of Planning and Investment Nguyen Chi Dung said, that production and business activities are still encountering many challenges, while the resilience of many businesses has reached its limit. Enterprises face difficulties regarding market and cash flow, while many others lack orders and have to downsize production, or even transfer shares, assets, and investment projects, amid an unfavourable mergers and acquisitions market.
The Minister emphasised that capital costs remain high and access to capital is limited. Credit balance as of June 20 only increased by 3.58%, while it rose by 8.11% in the same period in 2022 and the volume of corporate bond issuance is low.
According to experts, the current low credit growth is mainly due to the weak demand of the economy and high-interest rates, so enterprises do not want or cannot borrow from credit institutions.
Dr. Nguyen Duc Do, Deputy Director of the Institute of Economics and Finance under the Academy of Finance, said that the average lending interest rate was 8.9% in mid-June 2023, as announced by the State Bank of Vietnam (SBV).
“The inflation rate is currently at 2% over the same period last year and the lending interest rate is 6.9% per year, higher than the GDP growth rate and higher than the average interest rates in the 2013-2021 period of 5.9% and 4.6% respectively. This interest rate hinders economic recovery and growth, while reducing aggregate demand and increasing bad debt,” said Nguyen Duc Do.
The SBV has lowered the regulatory interest rate four times since the beginning of the year, helping to reduce deposit and lending interest rates. Recently, it is said that the exchange rate has stabilised and inflation is lower than forecast, thus it is time for the SBV to study the further reduction of interest rates to support enterprises and the economy.
The “Vietnam’s economy in the first six months and prospects for the end of 2023” report, released by the Central Institute for Economic Management (CIEM), proposed three scenarios of GDP growth this year of 5.34%, 5.72% and 6.46%, lower than the set target of 6.5%. Notably, CIEM believes that achieving a positive scenario of 6.46% requires a series of positive assumptions, including monetary easing.
Dr. Le Duy Binh said that the current context is creating more room for monetary policy. Based on stable macroeconomic conditions such as inflation, consumer price index, balance of payments, exchange rate, etc., the monetary tools can be used to further lower lending interest rates, Binh said.
However, the expert noted that interest rate reduction needs to be associated with the capital absorption capacity, or the ability to use capital effectively. In addition, monetary policy has to go in line with fiscal policy, in which public investment and tax policies are important drivers.
