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| Press conference to announce the ADO Report for September 2023, September 27. (Photo: Hong Chau) |
The Asian Development Outlook (ADO) September 2023 report noted that key factors impacting the economy include the global economic slowdown, monetary tightening in some developed countries, and disruptions due to rising global geopolitical tensions.
Inflation forecasts were revised down from 4.5% to 3.8% for 2023 and from 4.2% to 4.0% for 2024.
The economy remains strong
Speaking at a press conference to launch the ADO Report, Mr. Shantanu Chakraborty, ADB Country Director for Vietnam, said that the weak external environment, including the slow recovery in China, has negatively affected Vietnam's export-oriented manufacturing sector, shrinking industrial production.
"However, the 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," Mr. Shantanu Chakraborty affirmed.
According to Mr. Shantanu Chakraborty, while Vietnam's industrial production is shrinking due to declining global demand, other sectors are forecast to grow healthily.
The services sector is expected to continue expanding, supported by a revival in tourism and a recovery in related services. Agriculture, which will benefit from rising food prices, is expected to grow by 3.2% in 2023 and beyond.
On the demand side, domestic consumption will be supported by moderate inflation and continue to grow in the remaining months of the year. The inflation forecast in the April 2023 Report was lowered to 3.8% for 2023 and 4.0% for 2024.
Inflationary pressures in the short term could come from disruptions to global supply chains due to the ongoing conflict between Russia and Ukraine, but these pressures could be contained by lower gas and oil prices in the second half of the year, coupled with stable domestic food prices.
The report said public investment will be the main driver of economic recovery and growth in 2023 as the government has committed to disbursing around $30 billion this year. In recent months, strong political commitment has helped disbursement improve significantly, although legal constraints remain.
"In the first 8 months of 2023, nearly 50.0% of the year's public investment disbursement plan has been implemented (up from 33.0% at the end of June 2023). The acceleration of government spending is an expected stimulus in the remaining months of the year.
Foreign investment shows signs of recovery despite the global economic downturn, with committed FDI capital as of August 2023 reaching 18.2 billion USD, up 8.2% year-on-year and FDI disbursement increasing slightly by 1.3% to 13.1 billion USD," the report said.
Mr. Nguyen Ba Hung, chief economist of ADB, said that weakening global demand will negatively impact trade prospects in the remaining months of 2023 and 2024. However, exports in August 2023 showed signs of recovery when they increased by 7.7% compared to the previous month.
"Export-import growth is expected to return to a modest 5.0% this year and next, with a recovery in global demand. Strong trade activity will help maintain a current account surplus this year, estimated at around 3.0% of GDP. As manufacturing activity recovers and imports of inputs for production increase, the current account balance is expected to decline to 2.0% of GDP by 2024," Mr. Hung said.
Many risks to economic outlook
According to ADB, risks to Vietnam’s economic outlook remain high. Domestically, systemic problems in public investment disbursement and structural weaknesses in the economy pose the main risks to growth.
Externally, a significant slowdown in the global economy and a weak recovery in China could negatively impact Vietnam’s exports, manufacturing activity and employment. Remaining high interest rates in the US and Europe, coupled with a stronger US dollar, could further complicate the recovery of external demand, leading to a depreciation of the VND.
The ADB report recommends that in the short term, the State should implement accommodative monetary policy and expansionary fiscal policy. "Slow credit growth suggests that monetary policy easing must be closely coordinated with fiscal policy implementation to effectively boost economic activity. Bank credit growth is expected to slow due to an increase in total bad debts, estimated at 5.0% in March 2023, and corresponding increase in provisioning requirements," the report stated.
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