Downside risks being felt on Vietnam’s growth path

Vietnam is forecast to face massive difficulties in domestic production recovery and external demand, which remain feeble, with lower-than-expected economic growth this year.

Singapore-based ASEAN+3 Macroeconomic Research Office (AMRO) last week published its annual flagship report, which forecasts the ASEAN+3 region to grow at 4.5 per cent this year, up from 4.3 per cent in 2023.

Vietnam is projected to stay in the top three fast-growing economies, with a growth rate of 6 per cent, just after the Philippines (6.3 per cent) and Cambodia (6.2 per cent).

The government has set a target of hitting an economic growth rate of 6.5 per cent this year. The rate touched 5.66 per cent in Q1 of 2024.

“In Vietnam, risks to the growth outlook are tilted towards the down- side. The primary downside risk stems from external factors, such as slower-than-expected economic growth in the US, the EU, and China,” AMRO said.

According to AMRO, on the domestic front, developers are grappling with persistent risks of subdued revenue and financial distress. Additionally, there are upside risks to consumer prices arising from extreme weather affecting food production and the depreciation of VND.

“Over the longer term, Vietnam’s growth potential faces a confluence of structural challenges. The country’s high growth is primarily attributable to multinational corporations. However, domestic supply chains need to be built up as part of the manufacturing ecosystem,” AMRO said. “Local micro, small, and medium-sized enterprises have faced difficulties in advancing up the value chain.”

Vietnam’s General Statistics Office reported that 89,100 businesses halted operations last year – up 20.7 per cent compared to the previous year; 65,500 enterprises stopped operations and waited for dissolution procedures – up 28.9 per cent; and 18,000 enterprises completed such procedures. On average, 14,400 enterprises left the market every month.

Q1 of 2024 saw 53,400 businesses with suspended operations – up 24.5 per cent on-year; 15,500 businesses stopped operations waiting for dissolution procedures – up 21.7 per cent; and 5,100 enterprises completed such procedures. On average, nearly 24,700 businesses left the market each month.

The Asian Development Bank (ADB) has also maintained its earlier growth projection for Vietnam this year despite lingering uncertainties in the external environment. Vietnam’s economy is expected to grow at 6 and 6.2 per cent in 2024 and 2025, respectively, according to its outlook for April, released last week.

“Vietnam’s economy is expected to grow at a solid pace this year and the next, despite a challenging global environment,” said ADB country director for Vietnam Shantanu Chakraborty. “However, global geopolitical uncertainties and domestic structural fragilities could impact this. Therefore, policy measures will need to combine shortterm growth support measures to strengthen domestic demand with long-term structural remedies to promote sustainable growth.”

The World Bank, in its East Asia and Pacific Economic Update released on April 1, projected that the Vietnamese economy would grow by 5.5 per cent this year, making putting among the top growth leaders in the world. The projection remains unchanged compared to the bank’s prediction of 5.5 per cent in 2024 and 6 per cent released earlier this year.

Vietnam’s economy is expected to grow at a solid pace this year and the next, despite a challenging global environment.

- Shantanu Chakraborty Country director for Vietnam Asian Development Bank

World Bank East Asia and Pacific chief economist Aaditya Mattoo ascribed Vietnam’s 5.5 per cent growth projection to global trade resilience as well as the country’s post-pandemic recovery resilience.

“The destination of China+1 is Vietnam. Accordingly, Vietnam can pull in huge investment. Therefore, Vietnam should not be satisfied with the GDP growth figure of 5.5 per cent as a country with great growth potential,” Mattoo said.

Global analysts FocusEconomics has also made a forecast that Vietnam will be ASEAN’s fastest-growing large economy in 2024.

“Industrial output and goods exports will benefit from improving global electronics demand, and services activity will be supported by higher visitor arrivals,” FocusEconomics told VIR. “Downside risks include a sharper-than-expected slowdown in key partner China and lower investment by multinationals due to a higher corporate tax rate.”

Their panelists see Vietnam’s GDP expanding 6 per cent in 2024, and 6.4 per cent in 2025.n