Vietnam's economy has achieved many impressive results, but in 2023 and the following years, many difficulties and challenges are expected to lie ahead.

Deputy director of the Vietnam Institute of Economics Le Xuan Sang.

A hard year but a lot of positivities

Facing many negative impacts from domestic and external fronts, Vietnam's economy in 2022 stood firm and overcame its challenges.

From the outside, the Russian-Ukrainian conflict has left unprecedented negative repercussions in many countries around the world, causing price hikes for oil/gasoline, gas, fertilizers, food, and ultimately high inflationary pressure, as well as the economic slowdown of Vietnam's main partners.

The negative effects of the Covid-19 pandemic persist, especially China's "zero Covid" policy, which has led to the disruption of global supply chains, although less severe than in previous years. Domestically, real estate and stock markets plummeted following the arrest of leaders of securities and real estate firms for irregularities and the State Bank of Vietnam's (SBV) decision to restrict lending to the real estate market and the issuance of corporate bonds.

Despite an unfavorable environment, Vietnam's economy has achieved impressive results and picked up growth momentum from the fourth quarter of 2021. This also coincided with the timing when Vietnam reopened its economy and shifted the Covid-19 approach to safe living with the pandemic.

In 2022, Vietnam's GDP growth was estimated at 8% year on year, the highest in the world, while the consumer price index (CPI) was relatively much lower than most countries, estimated at 3.5%.

Such strong growth was achieved thanks to various factors, first of all, due to the very low growth baseline in 2021 at 2.58%. Other factors, such as a strong post-pandemic recovery, new opportunities from the geo-political situation, and the characteristics of the Vietnamese economic structure, have played an important role in contributing to the overall growth on both the demand and supply sides.

On the demand side, GDP growth was driven by the strong recovery from the fourth quarter of 2021, when the economy began to open up, with a sharp increase in consumption, investment and exports.

Private consumption rebounded and increased at a rapid pace following the reopening of the economy on October 12, 2021. Total retail sales of consumer goods and services in 11 months of 2022 increased by 14.9% compared to the same period in 2019, the year before the onset of the Covid-19 pandemic.

Actual foreign direct investment in the first 11 months was estimated at US$19.68 billion, up 15.1% from the same period last year, a five-year high for such a period. Factors such as Covid-19 under control, positive economic growth, changes in the geo-economic landscape, China's zero Covid policy, new generation FTAs, especially EVFTA, which came into force in the year with further tariff reduction, and political stability, are the key factors to promote higher FDI in Vietnam.
Vietnam’s foreign trade performance also gained many achievements. During the 11 months, export turnover was estimated at $342.21 billion, up 13.4% over the same period last year; In particular, the trade balance is expected to stay positive with $10.6 billion, significantly higher than the surplus of $0.6 billion from last year, with lower logistics costs seen as a boost for the result.

Looking at the supply side, the industry and construction sectors mounted a strong recovery. In the first 11 months of 2022, industrial output was estimated to increase by 8.6% over the same period last year, of which the processing and manufacturing industry rose by 8.9%, with growth in industrial production seen in 61 out of 64 provinces/cities. In addition to the factors mentioned above, this result is partly due to the increase in the number of employees working in industrial enterprises by 5.9% year on year.

In 2022, 194,700 enterprises registered for new establishment and returned to operation, up 33.2% year on year. On average, there were 17,700 newly established enterprises and those returning to operation per month.

The agro, forestry, and fishery sectors also contributed to the overall growth in the context of a sharp increase in input prices due to the pandemic and the Russia-Ukraine conflict, especially fertilizer and petrol prices.

Seafood export remained a bright spot for the agricultural sector, mainly thanks to implementing four major FTAs: EVFTA, CPTPP, RCEP, and UKVFTA.

The service sector continued to recover strongly from the pandemic, with a 21-fold increase in the number of international arrivals during the 11 months and a 48.7% increase in passenger transport.

Keeping the CPI at a relatively low level was also a remarkable endeavor, with the main driver of CPI over the year being an increase in transport prices, mainly energy and oil.

It should be noted that the inflation rate in Vietnam is relatively low compared to many other countries in the world, especially Europe and the US, mainly due to: being less affected by the Russia-Ukraine conflict on prices of commodity groups, as Vietnam is a major food producer itself; less use of gas for consumption and production than developed countries in Europe, the US, and Japan; Some commodities are regulated by the state to keep prices at stable rates, even offset prices in the context of rising prices of strategic commodities; Vietnam’s proximity to China means it is less affected compared to others from the disruption of supply chains and logistics services; the resilience of Vietnam’s supply chains; the low-interest rate environment from 2020 to October 2022, creating favorable conditions for businesses to recover.

Electronics production at Meiko Vietnam. Photo: Thanh Hai

However, there are still issues that hinder the recovery momentum. First of all, public investment has not been disbursed as planned, with the estimated disbursement rate of public investment capital of 11 months of 2022 set to reach 52.43% of the plan, causing waste and increasing the debt burden for the state budget.

This is mainly due to complicated regulations in disbursement, valuation of raw materials not reflecting the sharp rise in prices in the market; the legal provisions related to real estate are inadequate, inconsistent, and not detailed enough; the lack of commitments from leaders and managers at all levels in pushing for the implementation of public projects.

Uncertainties in the financial and real estate markets also worsened the situation, causing real estate, bond, and stock market investors to suffer heavy losses.

Challenges ahead

In 2023 and subsequent years, it is forecasted that the Vietnamese economy will face many difficulties and challenges. First, the Fed would likely continue to raise interest rates from the end of 2022 level of 4.37% to a record high (since 2009) of 5.1% by the end of 2023 because inflation has not decreased sustainably, especially service inflation. This puts pressure on the SBV to continue increasing policy rates, balancing lending needs, controlling inflation, and harmonizing with socioeconomic development goals.

Although the credit room has been increased since December 14, along with relaxation on conditions for issuance and corporate bonds (amended Decree 65), Fed’s imminent hiking interest rate would continue to put great pressure on the liquidity, and the capability to mobilize capital of credit institutions, real estate developers - which are already under great pressure to repay a debt to bondholders in 2023 and 2024, not to mention liquidity and prices in many real estate segments have fallen sharply.

The fact that GDP growth is forecast to be lower in many countries (except China), along with Vietnam's exports and production starting to slow down in the last months of 2022, shows that the economic prospects will be more difficult in 2023.

In this regard, Vietnam’s GDP growth is estimated at 6.5%-7%, and CPI is 4.5%-4.7%. Of course, these forecasts would depend on the results of the implementation of the disbursement result of the large public spending package (VND700 trillion or $29.6 billion), the development of the Russia-Ukraine conflict, and the sustainability of China's economic opening.

The immediate difficulties require the Government, departments, and enterprises to make great efforts and effectively implement the proposed economic plans and countermeasures so that 2023 remains another bright year for Vietnam’s socio-economic development.