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After a strong performance in 2022, Vietnam’s economic growth is expected to moderate at 6.5 percent this year and further expand at 6.8 percent in 2024, according to Asian Development Outlook (ADO) released by the Asian Development Bank (ADB) on April 4.
Vietnam’s economic growth will be constrained in 2023 by the global economic slowdown, continued monetary tightening in advanced economies, and spillover from global geopolitical tensions, said ADB Country Director for Vietnam Andrew Jeffries.
However, he held that Vietnam’s growth support policy with monetary easing, a large amount of public investment to be disbursed in 2023, and the reopening of the China will help the country counter these headwinds.
The ADO highlighted that global economic slowdown deepened in the fourth quarter of 2022 and will likely continue in 2023. Falling global demand is expected to weigh on industrial growth, it said, adding that agriculture output is expected to grow by 3.2 percent this year on revived domestic demand and the reopening of China, which accounts for 45 percent of Vietnam’s export of fruits and vegetables.
Tourist arrivals from China starting March 15 is expected to benefit the tourism and services in Vietnam, with the sector forecast to grow by 8.0 percent this year.
Public investment will be another key driver for economic recovery and growth in 2023 and 2024, spurring construction and other related economic activities. Along with the move to monetary easing in March 2023, public spending is expected to generate substantial multiplier effects, creating strong growth stimulus for the economy.
According to the ADO, the Vietnamese government is committed to disbursing US$30 billion in the year, of which 90 percent had been allocated to disbursing ministries and provinces as of January 2023. Foreign investment, however, will still be hampered by the global economic slowdown. Newly registered and disbursed FDI fell by 38 percent and then 4.9 percent year on year in the first two months of 2023.
The prolonged pandemic, however, exposed structural issues that are among the main downside risks to the economy, said the report.
Nguyen Minh Cuong, Principal Country Economist for Vietnam, said that the fiscal deficit in 2023 could exceed the target, which is 4.4 percent of GDP. He said that Vietnam should continue reform to make its finances more sustainable, significantly reducing dependence on unsustainable revenue sources such as land and oil.
The ADB forecast that on the demand side, domestic consumption will continue to rebound in 2023. Revived tourism, new public investment and stimulus programs initiated in January 2022, and a salary increase effective in July 2023 are expected to keep domestic consumption on the rise, though higher inflation may hamper its recovery.
Weakening global demand will continue to dampen trade in 2023. Exports in the first two months of 2023 decreased by 10.4 percent year on year, while imports dropped by 16 percent, it said.
Both imports and exports are forecast to shrink by 7 percent this year and next. Slowing trade could create a current account deficit that equals 1 percent of GDP this year before moving back into surplus in 2024.
