The strong growth experienced in the first half of the year provides a solid foundation for building momentum towards achieving the annual growth target. If there are no major fluctuations, the General Statistics Office (GSO) predicts that Vietnam is likely to reach the 2024 annual growth target, estimated between 6 and 6.5 percent.
According to the GSO, the country's GDP growth in the first six months of the year was 6.42 percent year-on-year.
Nguyen Thi Huong, GSO director general, said despite numerous challenges and uncertainties the global economy had improved as demand rebounded, while inflation was largely under control thanks to efforts to improve the economy's supply side.
Foreign investment disbursement in the first half of this year reached an estimated US$10.84 billion, surging 8.2 percent year-on-year and marking a record high over the past five years. The foreign investment inflows into Vietnam during the reviewed period also saw a positive increase of 13.1 percent year-on-year, to nearly $15.19 billion.
Foreign investors registered nearly $9.54 billion in 1,538 new projects, up 47 percent in capital and 19 percent in project numbers, compared to the same time last year.
“Vietnam's socio-economic situation in the second quarter achieved positive results amid global economic uncertainties. The Government’s management policies, led by the Prime Minister and various ministries and localities, have gradually proven effective, ensuring the smooth operation of supply chains and distribution of goods and services, reducing lending interest rates, stabilizing the foreign exchange market, promoting public investment disbursement and implementing credit packages to support various sectors,” Huong said.
Also according to a series of reports from international organizations, Vietnam's economy is experiencing a surge, fueled by strong export and industrial production.
The International Monetary Fund (IMF) expressed optimism in its 2024 Article IV consultation with Vietnam. Paulo Medas, head of the IMF team to Vietnam, predicted a nearly 6 percent growth for the Vietnamese economy in 2024, supported by robust external demand, stable FDI and recent policy adjustments. Inflation is expected to stay within the State Bank of Vietnam (SBV)'s target range of 4-4.5 percent this year.
The fund welcomed Vietnam's efforts to streamline the real estate sector by amending the Land Law and other related regulations, he said, stressing the need for the country to continue restructuring struggling property developers and fostering a healthy corporate bond market.
Standard Chartered Bank released an update projecting Vietnam's GDP growth at 5.3 percent in the second quarter. Its experts forecast significant growth in retail sales (8.2 percent year-on-year) and exports (14.2 percent) for June. The electronics export sector is expected to maintain its upward trajectory throughout the year.
Import growth and industrial production were anticipated to reach 26 and 5.2 percent, respectively, in June. Inflation might rise slightly to 4.5 from 4.4 percent in May, marking the third consecutive month it stayed above 4 percent. Rising costs in education, housing, health care and food were driving this inflation and the trend is likely to continue in the coming months.
A World Bank (WB) report dated June 19 indicated a 2.6 percent month-on-month increase in Vietnam's industrial production index (IIP) for May. This growth was primarily driven by the manufacturing and processing sectors, particularly machinery, equipment, computers and electronics. The report highlighted a notable rise in the import of intermediate goods, suggesting strong demand from trade partners and potentially even higher export levels in the near future.
Meanwhile, the Asian Development Bank (ADB) reported a 7.7 percent growth in Vietnam's local currency bond market in the second quarter compared to the previous one, which was attributed to increased government bond issuances and the SBV's resumption of issuing treasury bills in March. Treasury and other government bonds rose by 3.3 percent in Q2 to support government funding needs. In contrast, corporate bonds fell by 0.9 percent due to a large volume of maturing bonds and low issuance volume.
Vietnam's sustainable bond market, comprised primarily of green bonds issued by individual enterprises, reached $800 million by the end of March, most on short maturities.
Despite the solid growth rate, Vietnam's GDP in the first half of 2024 increased by 6.42 percent, slightly lower than the 6.58 percent rate recorded during the same period in 2022 within the 2020-24 timeframe.
In comparison to the two growth scenarios outlined in Resolution 01/NQ-CP, based on GDP growth results from the first quarter of 2024, second-quarter GDP growth surpassed expectations, reaching 5.85 percent in the lower scenario and 6.32 percent in the higher scenario. This positive outcome is a favorable position for Vietnam to aim for the upper limit of the 2024 growth target of 6.5 percent.
Despite this positive economic recovery, with second-quarter GDP growth estimated at 6.93 percent and first-half growth at 6.42 percent, surpassing forecasts, significant challenges lie ahead.
Several key macro-economic indicators show considerable pressures on the economy, notably inflation. The average Consumer Price Index (CPI) rose by 4.08 percent compared to the same period last year, exceeding the lower end of the annual target range of 4-4.5 percent. CPI is also showing a persistent upward trend on a monthly basis.
Economic experts caution that inflation may continue to rise due to supply fluctuations, global price volatility, increased demand during the peak summer season for electricity and services such as transportation and tourism, the wage increases which took effect from July 1 and anticipated adjustments in prices of State-controlled items such as electricity, medical services and education.
According to Nguyen Thi Mai Hanh, director of the GSO’s Department of National Accounts System, domestic consumption has shown signs of improvement but has not yet met expectations. Evidence of this can be seen in the fact that total retail sales of goods and revenue from consumer services (excluding price factors) increased by only 5.7 percent over the past six months, significantly below anticipated levels.
According to Nguyen Quoc Viet, PhD, deputy director of the Institute for Economic and Policy Research at the Hanoi National University, businesses and individuals are still cautious in their spending and investment due to uncertain economic prospects. This cautious approach is reflected in the low credit growth index, despite an increase in deposits held by banks. Additionally, the rise of e-commerce and the availability of inexpensive goods from abroad are having a profound impact on domestic products.
In terms of industrial production, the added value of the entire industry in the first half of 2024 rose by 7.54 percent compared to the same period last year. While the processing and manufacturing sector continued to drive overall economic growth, 56 localities saw an increase in the Industrial Production Index, although seven others experienced a decline.
Statistics indicate that certain service sectors, such as wholesale and retail, automobile and motorcycle repair, and finance and banking, all recorded lower growth rates than in the first half of 2023.
The disbursement of public investment funds has shown a tendency to stagnate, failing to exhibit strong growth even though total public investment resources this year are lower than last year. Notably, some ministries and departments have yet to disburse any funds, with allocated capital still sitting unused.
As the challenges and obstacles ahead are significant, Hanh proposed industries and sectors should closely monitor production and business conditions to proactively address emerging risks. This includes focusing on policies to eliminate obstacles, freeing up resources for businesses and production establishments, particularly in processing, manufacturing and market services. Enhancing linkages between production and distribution and accelerating the efficient disbursement of public investment capital are also crucial to achieving targets and benefiting other economic sectors. Furthermore, efforts to stimulate domestic consumption and innovate trade promotion activities to capitalize on market recovery trends and export opportunities must continue.
Enterprises continue to grapple with numerous challenges, including persistent issues in the business environment, capital constraints and high input costs amid a challenging output market.
The country needs to 'renew' old growth drivers and effectively harness new ones, such as digital economic development, increased labor and total factor productivity and the advancement of the private sector. Enhancing and refining institutional quality is also pivotal.
To boost demand, the National Assembly has extended a 2 percent reduction in VAT on certain goods and services until the end of the year. Some experts advocate for extending this policy until the end of 2025 and even propose deeper VAT cuts to encourage increased consumer spending.
A report from the Ministry of Planning and Investment underscores the necessity of implementing decisive measures to resolve production and business difficulties, unfreeze credit flows, expedite public investment disbursement, and drive economic growth. Additionally, maintaining focus on controlling inflation remains critical in the current economic climate.
Hanh said that in the second half of the year, Vietnam's economy must implement fiscal and monetary policies, as well as investment and consumption stimuli, with flexibility. This approach aims to ensure economic, political and social stability while balancing macroeconomic indicators and effectively controlling inflation. The country should also focus on revitalizing growth drivers to foster breakthroughs in strategic infrastructure development.
"Adhering to the guiding principle of 'No retreat, only action' we emphasize courage, proactiveness and unwavering determination. We are confident that with concerted efforts from the entire political system, ministries, agencies, local governments, organizations, businesses and citizens, the ambitious growth target of 6.5 percent is achievable," she added.
