Vietnam's economy remains resilient amid weakening global demand: ADB

Vietnam’s economic growth is expected to slow down to 5.8% in 2023 and 6.0% in 2024, compared to the April 2023 forecast of 6.5% and 6.8% respectively, mainly due to weak external demand, according to a report by the Asian Development Bank (ADB).
Vietnam's economy remains resilient amid weakening global demand: ADB
Vietnam’s economic growth is expected to slow down to 5.8% in 2023 and 6.0% in 2024, compared to the April 2023 forecast of 6.5% and 6.8%, according to ADB. (Photo: Hong Chau)

The Asian Development Outlook (ADO) September 2023 noted that the main forces impacting the economy have been the global economic slowdown, monetary tightening in some advanced countries, and the disruption caused by exacerbated geopolitical tensions. Inflation forecasts are revised down to 3.8% from 4.5% for 2023 and 4.0% from 4.2% for 2024.

“Weak external environment, including from a subdued recovery in the People’s Republic of China, has hampered export-led manufacturing, thus shrinking industrial production in Vietnam,” said ADB Country Director for Vietnam Shantanu Chakraborty.

“However, the economy remains resilient, and recovery is expected to pick up in the near term, driven by strong domestic consumption, which is supported by moderate inflation, an acceleration of public investment, and improved trade activities.”

While Vietnam’s industrial production is shrinking due to falling global demand, other sectors are forecast to display healthy growth. Services are expected to continue expanding, supported by a revival in tourism and the recovery of associated services. Agriculture will benefit from rising food prices, and it is expected to expand by 3.2% in 2023 and the next year.

According to the report, weak global demand will dampen trade prospects for the rest of 2023 and 2024. However, export in August 2023 showed a recovery signal by increasing 7.7% monthly. Import and export growth are expected to return to a modest rate of 5.0% this year and next year with the revival of external demand.

Robust trade activity will help to maintain the current accountbalance in surplus this year, estimated at around 3.0% of GDP. As manufacturing activity is restored, pushing up imports for production inputs, the current account balance is projected to narrow to 2.0% of GDP in 2024.

The ADO April 2023 inflation forecast is lowered to 3.8% for 2023 and 4.0% for 2024. Inflationary pressure in the near term may come from the disruption of global supply chains due to the continued Ukraine conflict. However, this pressure could be contained by subdued gas and petroleum prices in theyear's second half and stable domestic food prices.

Coordinated policy can effectively support economic recovery, considering relative price stability and weak demand. In the near term, monetary policy should be accommodative and fiscal policy expansionary. Slow credit growth indicates that monetary policy loosening must be closely coordinated with fiscal policy implementation to effectively boost economic activities. Banks’ credit provision is expected to grow slowly due to rising gross nonperforming loans, estimated at around 5.0% by March 2023, and increased provisioning requirements accordingly.

The report also highlighted significant risks to the outlook. Internally, slow disbursements of public investment and structural weaknesses in the real economy are the main downside risks to the economy.

Externally, a substantial slowdown in global growth and weak recovery in the PRC remain risks to the economic outlook. Sustained high interest rates in the US and Europe and a stronger US dollar may lead to further challenges to the recovery of external demand, and weaknesses in the dong exchange rate.

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