Economy bouncing back with great efforts

The Vietnamese economy has been gradually recovering on the back of the authorities’ great efforts in reining in the health crisis and lifting enterprises out of difficulties, with applause from the international community pinning high hope on the nation’s brighter economic outlook.
Local production is witnessing a strong recovery, helping the economy to achieve higher growth
Local production is witnessing a strong recovery, helping the economy to achieve higher growth

Living and working in Vietnam for a few years, Andrew Jeffries, country director of the Asian Development Bank (ADB) in Vietnam, has visited so many places where he sees great potential for development, and further tightening the cooperation between the bank and the country via projects and programmes.

Despite COVID-19 making a big dent in the Vietnamese economy, the ADB still believed that the economy could stay afloat and go forward even stronger, thanks to its big resilience supported by growing consumption and production, in addition to the expansion of exports.

In its Asian Development Outlook (ADO) Update 2022 released last week, the ADB maintains its favourable economic prospects for Vietnam, with a forecast that the country’s GDP will climb 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,” Jeffries said. “The economic rebound is expected to continue over the second half of 2022, supported by strong economic fundamentals, flexible monetary policy, and a faster-than-expected recovery in manufacturing, services, and domestic consumption from July to December.”

According to the ADO, global food shortages and restored global food supply chains will boost agriculture production this year. But the forecast for agriculture growth is revised down to 3% from the earlier 3.5% projection, because high input costs may still constrain the sector’s growth. Softening global demand has already slowed manufacturing.

The manufacturing purchasing managers’ index in August reduced to 52.7 from 54 in June. Because of this, the forecast for industry growth is lowered to 8.5% from 9.5%, but the outlook for the industry remains bullish given strong foreign direct investment (FDI) disbursement in the sector.

Moreover, fully normalised domestic mobility and the lifting of COVID-19 travel restrictions for foreign visitors will support a rebound in tourism in the second half that will be stronger than was expected in April. This will drive services growth, revised up to 6.6% for 2022 from the earlier 5.5% projection. The raised forecast is nevertheless below the services growth of 7.3% in pre-pandemic 2019.

Statistics from Vietnam’s Ministry of Planning and Investment (MPI) showed that from January-September 20, registered FDI totalled 18.7 billion USD, down 15.3% on the year. The figure includes 7.12 billion USD for 1,355 new projects, respectively down 43% and up 11.8%. Over 8.3 billion USD was added to 769 operational projects, up 29.9% and 13.4%, respectively. Meanwhile, foreign investors used more than 3.28 billion USD for acquiring stakes in Vietnamese companies, up 1.9%.

According to the MPI, though newly registered investment has yet to fully recover from COVID-19’s impacts and recent global uncertainties, the capital added to existing projects and spent on stake acquisition has increased, reflecting the good performance of operational projects.

Also, the total FDI disbursed over the January – September 20 period reached 15.4 billion USD, up 16.2% as compared to that in the same period last year.

“This is a big signal about foreign investors’ confidence in Vietnam’s investment outlook in the time to come,” commented Do Nhat Hoang, general director of the MPI’s Foreign Investment Agency.

The processing and manufacturing sector continued to take the lead with over 12.1 billion USD in registered FDI, holding 64.6% of total registered FDI. It was followed by real estate with more than 3.5 billion USD or nearly 19% of the total.

Key drivers

“Besides great efforts in administrative reform, Vietnam has been doing an excellent job controlling COVID-19, making it quite favourable for enterprises to perform,” said ADB principal country economist Nguyen Minh Cuong.

According to Carl Thayer, emeritus professor at the University of New South Wales, Vietnam has been doing a very good job in managing the COVID-19 pandemic, making it favourable for business, production, and consumption activities of people and enterprises.

“Vietnam has made two significant contributions in combatting COVID-19. Their first contribution was in their role as ASEAN Chair. Vietnam pioneered the use of virtual conferences among relevant ministers of ASEAN member states,” Thayer said. “Vietnam demonstrated proactive leadership in forging a regional consensus on how to respond to this pandemic. After serving as ASEAN chair, Vietnam’s Prime Minister Pham Minh Chinh addressed the UN General Assembly and spoke in effect on behalf of all developing countries in urging vaccine equity and the transfer of intellectual property rights to counter the COVID pandemic.”

“Vietnam’s second contribution was to successfully combat COVID-19 domestically.

Vietnam did quite well in the first year but faced major challenges when the Delta variant struck. The country pursued COVID diplomacy to acquire the vaccines necessary to inoculate the population. It instituted lockdowns where necessary. The result was that Vietnam was able to drop its zero COVID policy and successfully counter the Omicron variant,” Thayer said. “Because of these two major contributions, Vietnam was chosen to host the regional Centre for Disease Control.”

Since early this year, PM Chinh has repeatedly ordered that both ministries and localities must continue enacting sturdy solutions to remove all hurdles regarding policies and mechanisms.

“If any issues are failing to be solved by ministries and localities, they must be reported to the government and the prime minister immediately, so that enterprises can find it favourable to perform,” PM Chinh said. “All legal documents must be reviewed now so that all impediments facing enterprises’ business and production activities can be removed as soon as possible. This will help make it easier to unleash and mobilise all resources in each enterprise, each citizen, and the whole economy. One of the best solutions now is to quicken the reduction and simplification of all administrative procedures and improve the quality of the domestic business and investment climate.”

Ministers and heads of ministerial agencies, and chairpersons of provinces and centrally-ruled cities are also requested to advance concrete and feasible solutions in amending the regulations and documents, in a bid to “remove all difficulties, create synchronousness and feasibility of the legal system, and contribute to mobilising all resources in society for investment and business, in service of the public and enterprises.”

Taking caution

Moody's Investors Service early this month upgraded the Vietnamese government’s long-term issuer and senior unsecured ratings to Ba2 from Ba3 and changed the outlook to stable from positive.

On the positive front, Moody’s expects continued improvements in economic competitiveness to support rising incomes and advancements in fiscal prudence, demonstrated through the execution of a more systematic, long-term debt management strategy and an increasing emphasis on fiscal policy regarding long-term challenges, including improving worker productivity and mitigating against physical climate risks.

However, on the downside, Moody’s underlined that the relatively low capitalisation levels of state-owned banks coupled with high domestic credit growth and potential risks from the real estate sector pose risks to the real economy in the event of a shock.

“Uncertainties relating to regional and global geopolitical tensions, higher imported input prices and uncertain growth prospects in Vietnam’s key trading partners may also pose limits to external surpluses for Vietnam's trade-reliant economy,” Moody’s noted.

According to international organisations, Vietnam’s economic prospects are expected to face some risks.

The ADB said that the global economic slowdown could weigh on Vietnam’s exports. Labour shortage is expected to weigh on the fast recovery of the services and labour-intensive export sectors in 2022.

“The slow delivery of planned public investment and social spending, especially the implementation of the government’s Economic Recovery and Development Programme, could slow growth this year and the next,” the ADB said.

The World Bank also stressed that to ensure stable growth, Vietnam is advised to 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.