Key downside risks to Vietnam’s growth outlook are derived mainly from the chances of a global economic slowdown.

Overview of the report launching event. Photo: Hai Yen/ The Hanoi Times

Hoe Ee Khor, Chief Economist of the ASEAN+3 Macroeconomic Research Office (AMRO), made the comments today [6 April] at the official launch of the office's flagship annual study, the ASEAN+3 Regional Economic Outlook (AREO) 2023.

"A slowdown in the global economy, coupled with tighter monetary conditions in various countries, may worsen Vietnam's external demand. The recovery also remains vulnerable to the risk of further waves of Covid-19 infection. In addition, a prolonged Ukraine crisis will put pressure on energy prices," Khor said.

This year, AMRO expects Vietnam's GDP growth to reach 6% in 2023 and then rebound to 7.1% in 2024.

The AMRO chief economist suggested that China's easing of border restrictions will benefit the country's services sector and exports.

From the domestic front, Khor pointed out that financial sector risks may arise from the lingering impact of Covid-19 on asset quality and uncertainty in the real estate market. Meanwhile, tepid sentiment in the real estate market has exacerbated vulnerabilities in Vietnam’s financial system.

Khor expected the Vietnamese Government to accelerate structural reforms to ensure a sustainable development path. He added that corporate bond market development is at an early stage, with private placements by property developers and banks dominating the market. Meanwhile, the equitization and divestment of state-owned enterprises (SOEs) have slowed down substantially in recent years. Therefore, SOEs still command a significant share of the economy, a dominance which can sometimes impede the development of the private sector, Khor said.

In addition, the lagging development of domestic industries and a shortage of skilled labor continue to hamper the country's efforts to move up the global value chain.

Electronics production at Rhythm Precision Vietnam at Noi Bai Industrial Park, Soc Son, Hanoi. Photo: Pham Hung

AMRO's Deputy Group Head and Senior Economist Anthony Tan echoed the report's forecast, saying that Vietnam's strong domestic consumption and robust export performance helped the country achieve solid growth last year [8%].

Tan told The Hanoi Times that while the country’s growth performance was sub-standard, the projection remains optimistic, thanks to the country’s key driving forces remaining intact.

“Vietnamese consumers are increasingly becoming more affluent. So that underscores the notion that private consumption would be a key growth driver,” Tan continued.

Tan also noted that since the economy was reopened, the service sector had become more active and that transportation or retail are now major development drivers. Tan also pointed out that smart public spending will support overall development this year and the following year.

AMRO forecasts ASEAN+3 growth at 4.6% this year and 4.5% in 2024, with ASEAN growth at 4.9% and 5.2%, respectively.

Domestic demand is expected to remain robust, with household spending supported by rising incomes and lower inflation. AMRO expects inflation to moderate from 6.5% last year to 4.7% in 2023 before normalizing to 3.0% next year.

However, downside risks abound. The region's growth prospects could be dampened by a spike in energy prices due to an escalation of the Ukraine crisis, a weaker-than-expected recovery in China, or a sharp slowdown in the United States. Continued monetary tightening in the US amid growing financial stability concerns could also increase financial market volatility and spark contagion fears.

AMRO also called on the ASEAN+3 economies to work more closely together to accelerate the region's path to net-zero.