The Asian Development Bank (ADB) has just released its Asian Development Outlook (ADO) report, in which it forecasts that Vietnam's economic growth is expected to slow down in 2023.
Specifically, ADB lowered Vietnam's full-year growth forecast for 2023 from 6.5% in the previous forecast to 5.8%. The growth forecast for 2024 was also adjusted from the previous 6.8% to 6%.
Inflation is expected to be at 3.8% in 2023 and 4% in 2024 due to stable domestic commodity prices.
According to Mr. Shantanu Chakraborty, ADB Country Director for Vietnam, the weak external environment, including the slow recovery in China, negatively affected Vietnam's export-oriented manufacturing sector, shrinking industrial production.
However, according to Mr. Shantanu Chakraborty, Vietnam's economy remains resilient and is expected to recover rapidly in the near future thanks to strong domestic consumption, supported by moderate inflation, accelerating public investment disbursement and improving trade activities.
While Vietnam’s industrial production is expected to contract due to weak global demand, other sectors are forecast to grow healthily. The services sector is expected to continue expanding thanks to a revival in tourism and a recovery in related services. Agriculture will benefit from rising food prices, and is expected to grow by 3.2% in 2023 and beyond.
The report also highlights significant risks to this outlook. Domestically, slow disbursement of public investment and structural weaknesses in the economy pose key risks to growth.
Externally, a sharp slowdown in global growth and a weak recovery in China remain risks to the economic outlook. Remaining high interest rates in the US and Europe, coupled with a stronger US dollar, could further complicate the recovery in external demand and lead to depreciation of the dong.
In the first half of the year, Vietnam's economic growth reached 3.7% compared to 6.5% in the same period in 2022. In the first 8 months of 2023, international visitors to Vietnam reached 7.8 million, 5.4 times higher than a year earlier, but still only about 70% of pre-pandemic levels.
In the first eight months of the year, the industrial production index decreased by 0.4%, causing an increasing number of businesses to close.
On the demand side, a recovery in domestic tourism helped consumption grow by 2.7% in the first half of 2023. However, investment still declined in the first half as total fixed asset accumulation fell to 1.2% from 3.8% a year earlier. Foreign direct investment (FDI) disbursement reached $10 billion in the first half, the same as the previous year.
However, FDI commitments in the first half of 2023 are estimated at US$13.4 billion, down 4.3% year-on-year due to geopolitical tensions and tightening global financial conditions. Weak external demand has led to a decline in trade, limiting overall growth.
The corporate bond market has been shrinking, mainly due to uncertainties in the real estate sector. Market sentiment has stabilized somewhat due to timely regulatory amendments and debt deferral policies, including bond restructuring.
However, the amount of corporate bonds issued, especially real estate bonds, has decreased significantly. The outstanding balance of "problem" bonds compared to total bank credit is relatively small, but the instability in the corporate bond and real estate markets can cause spillover effects to the banking sector.
To help stabilize the corporate bond market, the State Bank of Vietnam has allowed banks to buy back unlisted bonds with the highest internal ratings without having to wait a year after selling them. The State Bank of Vietnam has also directed banks to deploy a preferential credit package of VND120 trillion for housing loans.
The slow recovery of the global economy has reduced import and export turnover. High interest rates in the US and Europe have slowed the recovery and reduced demand from major trading partners. Export turnover in the first 8 months of 2023 decreased by 10% compared to the same period in 2022.
Demand fell more sharply in Vietnam's key markets, with exports to the US down 20.6%, the European Union down 9.7% and the Association of Southeast Asian Nations (ASEAN) down 6.8%.
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