BEYOND THE WOES
The global economic context continues to be problematic, with Vietnam needing to exert every effort to stay the course, including maintaining existing growth drivers and creating new ones.
The global economy continued to face a raft of difficulties in 2023, though Vietnam exhibited some degree of recovery, with stable macro-economic factors, inflation staying under control, major balances guaranteed, and solid performance seen in many key economic indicators, making it an economic bright spot in both the region and the world.
“Despite being under a lot of pressure, Vietnam’s economy in the closing months of 2023 showed positive trends, helping its annual GDP growth reach 5.05 per cent; among the highest in the world,” Dr. Can Van Luc, Member of the National Financial - Monetary Policy Advisory Council, told the Vietnam Economic Scenario Forum 2024, co-hosted by Vietnam Economic Times (VET) / VnEconomy and the Ministry of Foreign Affairs (MoFA) on January 11 in Hanoi. “Entering into 2024, the three keywords of ‘risk, uncertainty, and caution’ remain in place, but forecasts reveal that Vietnam’s GDP growth rate has improved.”
2023 PERFORMANCE
Global economic growth in 2023 fell short of forecasts by international organizations. According to the World Bank (WB), the global economy grew about 2.6 per cent, while the International Monetary Fund (IMF) put growth at 3 per cent.
A report from the General Statistics Office of Vietnam (GSO) noted that strategic competition between major countries became more intense and more comprehensive last year, with rising geopolitical tensions such as the Russia - Ukraine conflict remaining complex, while the outbreak of fighting in the Middle East has impacted the post-pandemic global economic recovery. Natural disasters, drought, storms, floods, and overall climate change had serious consequences, and risks regarding energy security, food security, and cyber security are on the rise.
Though global inflation has cooled somewhat, it is still at a high level. Many major economies are maintaining tight monetary policies and high interest rates, trade, consumption, and investment continue to decline, and rising trade protection and defenses are affecting exports and imports.
Many countries, including Vietnam’s major trading partners, have seen slowing growth and rising public debt, presenting the potential for risk, while world aggregate demand has tumbled, which directly affects countries with significant economic openness, including Vietnam.
For example, Vietnam’s export turnover of goods is estimated at $355.5 billion, down 4.4 per cent compared to 2022, while import turnover is estimated at $327.5 billion, down 8.9 per cent.
However, its economy also saw a number of bright spots. Dr. Luc pointed out that although growth was lower than planned, at 5.05 per cent, it was relatively high regionally-speaking, behind only India, with 6.3 per cent, slightly lower than the Philippines, and equal to China and the average in the Asia-Pacific region. “In particular, the agriculture sector continues to be a foundation for the economy,
with some service industries growing steadily since the beginning of last year, while the industrial sector, after experiencing difficulties at the beginning of the year, tended towards recovery at the end of the year,” he explained.
Meanwhile, Mr. Ahmed Yeganeh, Country Head of Wholesale Banking at HSBC Vietnam, noted the increasing interest in Vietnam among foreign investors. “We saw a record volume of new FDI capital pouring into the country in 2023, rising to its highest level for four years, to about 5 per cent of GDP,” he said. “The fact that businesses from more developed markets are looking for investment opportunities in Vietnam shows that they still view the country as a future growth opportunity.”
ENTERING INTO 2024
The global economic situation in 2024 is forecast to continue to be problematic. Dr. Luc identified four major risks and challenges for the world and for Vietnam this year.
First, geopolitical conflicts are still extremely complex and increase strategic competition between major countries. Second are financial and currency risks, and the failure of some banks in the US and Switzerland. Debt, including public debt and private debt, is high around the world, and the risk of bad debts and defaults is growing. Third, food security and energy security are constantly huge problems for the world, including Vietnam. Fourth, global prices, inflation, and interest rates have come down but remain at high levels, while financial and currency risks have risen, slowing down the global economic recovery process.
“The world’s largest economies continue to slow down, partly due to high interest rates that will last into 2024,” Dr. Luc noted. “This negatively impacts Vietnam’s exports, investment, consumption, international tourism, and financial market.” Similarly, Mr. Dau Anh Tuan, Deputy Secretary-General and Director of the Legal Department at the Vietnam Chamber of Commerce and Industry (VCCI), affirmed that the 2024 context remains difficult, full of uncertainty and unforeseen factors.
“Conflicts between countries show no signs of ending, posing a potential challenge that businesses must address,” he went on. “For example, armed conflict and tension along international shipping routes in the Red Sea make Vietnam’s exports difficult and shipping costs higher.”
FOR GROWTH MOMENTUM
To create growth momentum in 2024, Dr. Luc emphasized the need to consolidate and renew existing growth drivers, focus on restructuring the economy after a long period of decline due to the pandemic, and handle poorly-performing businesses and projects. More importantly, it is necessary to identify and exploit new growth drivers, with an emphasis on accelerating the process of perfecting institutions, in particular guiding the implementation of laws on land, housing, real estate business, credit institutions, other amended laws, and support mechanisms as a global minimum tax is applied.
“A legal framework for new economic models and new businesses is needed quickly, while the pilot of the sandbox mechanism has been conducted for too long,” he added. “To develop new economic models, it is necessary to have a testing mechanism. It also is necessary to soon develop projects to improve national workplace productivity, strengthen the training of high-quality human resources, create a more open environment to promote innovation, and establish a National Productivity Committee so there is clear guidance and policy mechanisms.”
Mr. Tuan believes the government has promptly made efforts to introduce appropriate solutions and adapt to the world economic context, such as Resolutions No. 01 and 02, expressing its determination and initiative in managing the economy.
However, he went on, solutions need to maintain and restore existing growth drivers. Specifically, it is necessary to promote private investment, and increase the number of newly-established enterprises while curbing the number that are closing. Institutional reform must be boosted, simplifying administrative procedures, removing inappropriate business conditions and specialized inspections, and strengthening dialogue with business associations and businesses to quickly overcome the difficulties.
Notably, the EU’s Carbon Border Adjustment Mechanism (CBAM) was implemented in 2023, so Vietnamese goods in a number of heavy industry groups exported to the EU have had to follow a declaration mechanism. Other exports to major markets such as the EU, the US, and Japan need to meet increasingly higher green standards. Conversely, investment projects in Vietnam need to access green and renewable energy sources, especially highquality and high-tech projects, enabling products to enter important markets and providing access to cheaper capital.
Some of Vietnam’s export industries struggled in 2023 not only because of inflation and market issues but also because of their tardy level of green transformation compared to other countries in the region. “Industries need to recognize the risks and challenges from slow green transformation, in order to make positive changes in the future,” Mr. Tuan added. “In general, green transformation in business activities in particular and in Vietnam’s economy in general is an inexorable trend. Businesses must consider this within their medium and long-term business plans.”
The global economic structure has also shifted to new energy. Vietnam announced a strong commitment to transition to netzero emissions by 2050 at COP26, and this requires a significant amount of investment. “Promoting and facilitating Vietnam’s business environment is an important factor in attracting investment to transition the energy sector,” said Mr. Yeganeh. “And net-zero is a really important part of government policy.”
Forecasts show that Vietnam’s GDP growth rate is improving. The WB has forecast growth to recover to 5.5 per cent in 2024 and then 6 per cent in 2025. Growth is forecast to be slower in the Asia-Pacific region than in Vietnam this year, with 4.5 per cent versus 5.5 per cent. “We will see continuous improvements in the global economy this year,” said Mr. Yeganeh. “Therefore, we expect Vietnam’s economy to continue to grow and improve, mainly in the second half of the year. However, there are still many variables that we are following very closely, to see how 2024 will play out.”