Vietnam’s growth is expected to outpace its Southeast Asian peers over the medium-term, albeit at a weaker pace than last year as global headwinds come to the fore.
Vietnam’s gross domestic product is expected to grow 6.5% in 2023, and then by 6.8% in 2024, according to Asian Development Bank’s April forecasts.
Although this is better than its neighbours, like Cambodia and the Philippines, it is still slower than 2022’s GDP growth of 8.0%. This is due to a number of factors, ADB Principal Country Economist Nguyen Minh Cuong told DNA.
“Continued monetary tightening in advanced economies will narrow the space for Vietnam to shift to a more accommodative monetary position to revive and promote growth,” Nguyen said.
Higher interest rates in advanced economies are likely hurt demand for Vietnamese exports and dampen foreign investment into the country.
“Continued monetary tightening in advanced economies would also cause uncertainties to Vietnam’s exchange rate policy and may trigger imported inflation,” Nguyen said.
Adding to the mix, indirect spillover from global geopolitical tensions is also likely scupper growth in 2023, Nguyen said. This would mainly be due to an increase in global oil prices and continued disruption of global supply chains.
In response, the Vietnamese government is injecting USD30.00 billion in public investment as part of a fiscal stimulus program to support economic growth.
“The bulk of investment will focus on large infrastructure projects, for example the North-South express way, the Long Thanh international airport, and regional connectivity,” Nguyen said, adding that Vietnam’s infrastructure, especially around logistics, is still underdeveloped compared to its peers.
This will generate strong multiplier effects as efficiencies are improved and transportation costs are reduced for companies which operate in the country.
On top of this, the reopening of China following the global pandemic will help Vietnam battle its headwinds as Chinese tourists return and demand agricultural demands increases.
Vietnam’s services sector is expected to expand by 8.0% in 2023, aided by the fact that China makes up its largest tourist market.
China’s reopening will also benefit agriculture, according to ADB’s report. “[China] could generate significant demand for Vietnam agricultural exports, as the country receives 45% of Vietnam’s exports of fruit and vegetables,” ADB said.
Agriculture is expected to expand by 3.2% in 2023.
Amidst blustery global headwinds and the government’s fiscal response, there is also a balancing act being played out with the banking system which has been under strain.
There are a number of risks emerging within the banking and broader corporate sectors in Vietnam, said Nguyen.
Capital markets are stressed as corporate bonds weigh, with corporate bond maturity in the second quarter of 2023 estimated at USD4.30 billion. Meanwhile, firms are not able to repay or refinance the debt as investors have paused their purchase of corporate bonds and bank financing is sky-high with elevated interest rates.
These problems could spill over into the banking system, Nguyen said, with non-performing loans, or loans that are in default or are close to default, being a potential problem.
Gross nonperforming loans reached 4.5% in 2022, increasing from 3.8% in 2021, “and may continue to increase”, ADB said.
Despite these potential troubles, Vietnam will boast the largest GDP growth in Southeast Asia if ADB’s forecasts come to fruition.
In second and third place, Philippines is eyeing 6.0% growth in 2023, according to ADB, while Cambodia’s GDP is expected to grow 5.5% annually.
In 2022, Malaysia led the region’s growth with an 8.7% annual increase in GDP, compared to Vietnam’s 8.0% growth.
Despite the expected strong performance from Vietnam this year, the country’s manufacturing sector was sluggish in March compared to its peers.