Vietnamese economy painted with brighter colours

The Vietnamese macro-economic landscape is witnessing bright colours with enterprises gradually bouncing back from woes in defiance of risks lingering.

Confidence of businesses is soaring regardless of various risks ahead
Confidence of businesses is soaring regardless of various risks ahead

Nguyen Duc Minh feels quite happy with his work now. The 38-year-old worker used to work for some foreign-invested enterprises in Hanoi before working for Japanese-backed furniture producer Nitori Furniture Vietnam at an industrial park in the city.

“Our company has now significantly recovered from the COVID-19 pandemic, some slowdown last year. We are working at full speed to meet the company’s export orders,” Minh said. “The life of close to 2,000 workers at Nitori Furniture has increasingly improved and we are all happy for that. It is expected that the company will continue swelling production here.”

According to a recent survey on Japanese investment in Asia and Oceania by the Japan External Trade Organisation (JETRO) for 2021, about 55.3% of Japanese companies are looking to increase their operations within 1-2 years in Vietnam, ranking first in Southeast Asia.

About 56.2% of surveyed firms answered “improved” when it comes to business profit prospects in 2022 as compared to last year.

The number of Japanese companies that invest and operate in Vietnam reported that their profits increased 31.4%, an increase compared to the last survey conducted in 2020.

The General Statistics Office (GSO) reported that in the first seven months of this year, about 89,400 enterprises were newly established, an year-on-year increase of 17.9%, and nearly 44,300 enterprises resumed operations, an year-on-year rise of 49.7%.

If the 102.3 billion USD worth of additional capital from 31,200 operational companies is included, the total newly-registered capital inserted into the economy in the first seven months of 2022 will be 145 billion USD, up 37.2% as compared to that in the same period last year.

Also in the first seven months, Vietnam’s index for industrial production rose 8.8% year-on-year, higher than the year-on-year 7.6% rate witnessed in the corresponding period of 2021, while the processing and manufacturing industry which creates over 80% of the economy’s industrial growth, advanced 9.7% year-on-year.

After growing 2.58% in 2021, the economy expanded 5.1% in the first quarter of this year, then 7.72% in the second quarter, and 6.42% in the first half of this year. It is expected by the GSO that the rate will be higher in the third quarter.

On the rise

Spain-based global analysts FocusEconomics told Nhan Dan Online in a statement that it expects Vietnam to be a leader in economic growth in Southeast Asia this year (see box). Looking at subsectors, growth in the industrial sector rose to 8.9% in the second quarter – higher than the 6.4% year-on-year in the first quarter - with manufacturing continuing to drive overall growth in economic activity.

“Industrial activity in Q2 benefited from China’s lockdowns in April–May, as Vietnam stepped in as an alternative production site. Moreover, growth in the services sector nearly doubled to 8.6% year-on-year in Q2, from Q1’s 4.6%,” FocusEconomics said. “Easing COVID-19 restrictions - particularly the lifting of a ban on international arrivals in March - boosted the reading. Lastly, agricultural production growth registered the mildest improvement - 3.0% year-on-year, which was higher than the year-on-year 2.4% rise in Q1.”

“Looking ahead, economic growth should accelerate further in Q3, keeping annual growth comfortably above the pre-pandemic average of 6.3%. A recovery in domestic demand, the return of international tourists and a rebound in investment will drive growth,” FocusEconomics continued. “That said, potential slowdowns among major trading partners and a resurgence of COVID-19 cases could dampen growth. In addition, rising inflation may soon prompt the State Bank of Vietnam (SBV) to shift its policy stance from accommodative to tightening, further restricting growth prospects.”

Regarding Vietnam’s performance this year, Suan Teck Kin and Peter Chia,
economists at United Overseas Bank, commented, “Based on the surprisingly strong data in the second quarter of 2022 and historical track record of a generally robust performance in the second half of the year, we are revising up our projection for Vietnam’s 2022 GDP growth to 7% from our earlier forecast of 6.5%, assuming no further severe domestic disruptions from COVID-19 and the second half’s growth of around 7.6-7.8%.”

Analysts at the Economist Intelligence Unit were more cautious regarding the short-term outlook, stating, “Despite a strong performance in the second quarter, we forecast real GDP growth to moderate in the third quarter, to 6.5%, as the rising cost of living tempers private consumption growth towards the end of 2022. The prospect of further lockdowns in China (a major re-export destination and source for inbound tourism for Vietnam) risks disrupting the supply of intermediate goods and constraining recovery in the tourism sector.”

FocusEconomics expects Vietnam’s GDP to expand 7% in 2022, which is up 0.3 percentage points from last month’s forecast, and 6.7% in 2023.

A few days ago, the World Bank also released its fresh forecast for Vietnam’s economic prospects.

“Despite the challenging global environment, the baseline outlook for Vietnam’s economy remains favourable. Reflecting low base effects, GDP is expected to grow by about 7.5% in 2022 and 6.7% in 2023, as growth converges toward its pre-pandemic growth rate of 6.5-7%,” the bank said in its Taking Stock report. “The rebound of the economy in 2022 will continue to benefit from an accommodative monetary policy and – to a lesser extent - the 2022-2023 Socio-Economic Recovery and Development.”

Risks looming

According to the United Overseas Bank, despite the brighter outlook, the Vietnamese economy may face some downside risks. These include the impact of ongoing Russia-Ukraine conflict on geopolitical developments, energy and food prices, and supply chain disruptions. In addition, US Federal Reserve’s aggressive policy bias could be another source of financial market risk for emerging economies such as Vietnam.

According to the World Bank, Vietnam’s medium-term prospects are subject to significant risks, with downside risks to growth. Externally, the emergence and spread of new COVID-19 variants and associated disruptions to economic activity continue to be a key risk, despite the ongoing normalisation and roll back of COVID-19 related restrictions in most countries.

“Meanwhile, persistent inflationary pressures and the prospects of more aggressive monetary tightening, especially in the US and other advanced economies could induce volatility in global financial markets and hamper economic growth even further at a time when a slowdown is already underway,” the World Bank report stated. “Continued health related lockdowns in China could further affect its growth and affect global value chains, in which Vietnam is an active member. Additionally, heightened geopolitical tensions and conflicts have raised short term uncertainty and may lead to long term structural changes in the global economy, as major economies reassess the costs and benefits of global integration, posing risks to near and medium-term prospects of the global economy.”

The bank also said that domestically, COVID-19 related risks could impair the recovery especially in the services sectors. Labour shortages could also hamper full economic recovery. In addition, financial risks may amplify given balance sheet weaknesses in the corporate, banking and household sectors which would in turn weigh on the recovery of domestic investment and consumption.

However, like thousands of other workers at Nitori Furniture Vietnam in Hanoi, worker Nguyen Duc Minh said that his wife is also working at a Japanese firm nearby. She is now receiving some vocational training before working at a new production chain that will be imported from Japan in September.

“We are expecting a brighter future in our work and life, and this will become true as all workers at the company are working round the clock to meet deadlines of all orders,” Minh said. “We all have been vaccinated so we feel secure at work. We do believe in Vietnam’s economic outlook.”


Economic growth forecasted for 2022 and 2023 in ASEAN (percent)
Source: FocusEconomics