Government orders new path for 2024, with growth still bullish

Prime Minister Pham Minh Chinh has just signed and promulgated Directive No.21/CT-TTg on construction of the country’s socio-economic development plan and state budget estimates in 2024.

The directive stated that in 2024, besides opportunities and advantages, the Vietnamese economy is forecasted to continue facing many difficulties and challenges. The situation in the world and the region is constantly changing, becoming more and more unpredictable, and international organisations must regularly adjust forecasts to match the actual situation.

Meanwhile, according to the directive, domestically, the socio-economic situation still has limitations and difficulties. In which production capacity, growth quality, and competitiveness of the economy remain limited, while fundamental factors such as institutions, infrastructure, human resources, and science and technology have not yet met the development requirements of the country.

PM Chinh ordered that the socio-economic development plan in 2024 must be developed based on a full and accurate assessment of the situation and results achieved in the implementation of the Socio-economic Development Plan in 2023.

The 2024 plan must timely and closely forecast the situation in the country, region and the wider world. It must discern opportunities and challenges for the development of industries and localities so that appropriate response solutions can be applied, with the minimisation of the negative impacts on the country’s socio-economic development.

“The year 2024 is a breakthrough year for us to complete the Socio-economic Development Plan 2021-2025 in the context that our country is heavily hit by the long-term consequences of the COVID-19 pandemic,” PM Chinh stated. “Thus the goals, orientations, and solutions set out must be stronger, more drastic and more effective, ensuring feasibility, synchronousness, and consistence with the implementation capabilities of sectors and localities, associated with the ability to balance, mobilise and effectively use resources.”

“This must create strong and substantive changes in socio-economic development, striving to successfully complete the tasks and goals of the Socio-economic Development Plan 2021-2025.”

Fresh predictions

According to the World Bank, after growing 3.1% last year, the global economy is set to slow substantially in 2023, to 2.1%, amid continued monetary policy tightening to rein in high inflation, before a tepid recovery in 2024, to 2.4%.

Tight global financial conditions and subdued external demand are expected to weigh on growth across emerging market and developing economies. Projections for many countries have been revised down over the forecast horizon, with upgrades primarily due to stronger-than-expected data at the beginning of 2023 more than offset by downgrades thereafter.

In its latest report on global economic prospects released more than one week ago, the World Bank forecasted that in this year, lacklustre growth in global goods trade, which is a key engine of the East Asia and Pacific region’s growth in recent decades, is expected to weigh on activity, notably in Vietnam where growth is projected to moderate.

The bank has lowered Vietnam’s economic from 6.3% for 2023 in its January forecast to 6% this year, 6.2% in 2024, and 6.5% in 2025.

Nevertheless, these rates are the highest in Southeast Asia, with the growth rate in 2023 being 5.5% for Cambodia, 4.9% for Indonesia, 4.3% for Malaysia, and 3.9% for both Laos and Thailand.

“Continued weak external demand and global uncertainties are adversely affecting the economy, translating into contraction in exports and imports, and a slowdown in industrial production,” the World Bank said in its June bulletin on Vietnam’s economic performance released early this week.

According to the bulletin, while domestic consumption (proxied by retail sales) remains robust and comparable to pre-pandemic levels, credit growth continues to slow, reflecting weak credit demand. If global financial conditions tighten more, external demand may weaken further. Northern Vietnam started experiencing brownouts in late May, which, if not addressed promptly, could impact the economy.

Figures from the Vietnamese General Statistics Office (GSO) have showed that Vietnam’s index for industrial production (IIP) in the first five months of this year fell 2% as compared to the corresponding period last year, when the IIP soar 8.1% year-on-year.

In which, the IIP for the processing and manufacturing sector dropped 2.5% against the same period last year when it ascended 8.9% year-on-year. The electricity production and distribution sector increased merely 0.8% year-on-year, while the mining sector went down by 3.5% year-on-year, and the sector of water supply and wastewater and trash management and treatment climbed 6.4%.

Spain-based global analysts FocusEconomics stated that in Vietnam, economic momentum will soften this year due to slower growth in private consumption, fixed investment and exports.

“That said, stronger fiscal spending will add support, and Vietnam will remain among ASEAN’s top performers (see box),” FocusEconomics said. “Foreign exchange fluctuations, monetary policy, relations with the US, and the impact of China’s recovery on exports are key factors to watch.”

FocusEconomics panelists see Vietnam’s GDP expanding 5.4% in 2023, which is down by 0.3 percentage points from the firm’s forecast made one month ago, and increasing 6.5% in 2024.

After sliding 11.2% year-on-year in April, industrial output rose 0.1% year-on-year in May. This still signals a worsening trend in the industrial sector.

FocusEconomics panelists see industrial production expanding 5% in 2023, which is down by 2.5 percentage points from one month ago, and climbing 8.8% in 2024.

Prompted by economic woes, the International Monetary Fund has also lowered its projection for Vietnam’s growth from 6.2% in January to 5.8% for this year and 6.9% for next year. This year’s rate will however also be among the highest in the Emerging and Developing Asia group with 30 economies forecasted.

The Vietnamese economy is expected by the government to climb 6.5% this year. However, Minister of Planning and Investment Nguyen Chi Dung said at the National Assembly, “All enterprises are now facing massive difficulties. How to rescue enterprises out of increased difficulties must be considered the most important task now.”

Continued support

Under the resolution on the government’s cabinet meeting for May released two weeks ago, the government required that from now until 2024,

“Efforts are to be made to consistently maintain macro-economic stability, control inflation, promote growth, and ensure major balances of the economy,” the resolution read. “In the coming time, it is forecasted that the global economic, socio-political, and security situation will continue becoming increasingly complex and unpredictable. Our country will continue to face many huge difficulties and challenges due to negative dual impacts of adverse external factors and internal prolonged limitations.”

The government has also set a prime target of timely detecting and removing difficulties and obstacles for businesses and people. It requires ministries, agencies, and localities to actively review and firmly grasp the situation of production and business activities in each industry in order to promptly detect and remove difficulties and obstructions, especially when it comes to mechanisms and policies to support businesses and people.

“The government will continue accelerating administrative reform, focusing on reviewing and resolutely trimming administrative procedures and business conditions that are no longer suitable, and vex people and businesses,” PM Chinh said. “We will absolutely do not promulgate new regulations that cause unnecessary costs, procedures and time for state management, affecting the interests of enterprises and people. In case that any regulation has been promulgated, it must be reviewed and amended immediately, with completion slated for August 2023 at the latest.”

National Assembly (NA) deputy Le Thanh Van representing the southernmost province of Ca Mau underlined the need to improve the quality of many state cadres who directly perform administrative procedures.

“The quality of many cadres remains poor, affecting enterprises’ performance and the economy’s competitiveness,” Van stressed.

NA deputy Nguyen Manh Hung representing the Mekong Delta city of Can Tho also underlined the need for long-term pro-business policies because “the domestic demand is now decreasing strongly, with numerous unemployed people.”

“For instance, the VAT will be reduced from the existing 10 to 8 per cent, but it last only until the year’s end. It is suggested that the reduction level can be 3 per cent and last until mid-2024 so that enterprises’ difficulties will be lessened and more employment can be generated,” Hung said.