Vietnam’s economic prospects stay bright despite dim global outlook

Vietnam's economy has performed well in the context of an unfavorable global outlook as strong recovery is seen in the majority of economic fields and localities. In 2023, the prospects are set to stay bright thanks to the implementation of the Socio-Economic Recovery Program 2022 - 2023.

Vice President of National Economics University Hoang Van Cuong.

Advantages and challenges are intertwined

In 2022, Vietnam’s economy has met and exceeded many socio-economic targets. The country’s GDP growth is estimated at 8% year on year, while inflation is kept below the 4% threshold.

Other positive results include export growth of 12%, consumer spending of 10%, and investment capital of 9%.

These achievements took place when the world situation remained volatile with unprecedented risks, including the disruption of the supply chain, the imbalance between supply and demand for input materials, high inflationary pressure, and declining consumer spending worldwide.

Domestically, the rising price pressure of gasoline, oil, and raw materials greatly affected many industries and fields. There are also risks related to the banking and bond markets, which are very sensitive to rapidly changing conditions in the real estate sector.

The negative impacts of climate change will increasingly weigh on agricultural production, while the health of communities is affected by sea level rise, floods, droughts, and hurricanes.

Such an unfavorable environment put great pressure on the Government to respond effectively to ensure macro-stability and keep the growth momentum of the economy.

There have been continuous and precise breakthroughs in the economy throughout 2022. The three main reasons for the economic development of 2022 are: Vietnam promptly changed its approach against the Covid-19 pandemic, creating favorable conditions for economic activities to return to normal; persistently using many policies and solutions for economic recovery, macro stability, and keeping inflation under control; the high economic growth was thanks to the low baseline from last year.

In that general context, the growth momentum in 2022 has created the space and conditions for effective monetary and fiscal maneuvers in 2023.

Vietnam’s high growth rate in 2022 at 8.02% contributes a great part to the realization of the 5-year socio-economic development plan, whereas inflation is well controlled, which allows the central bank to turn to an accommodative, prudent monetary policy. If needed, the low budget deficit and high budget revenue remain essential for expansionary fiscal policy.

Meanwhile, the Government has set out many medium and long-term development programs and approved public investment projects under the socio-economic recovery program for next year for a strong head start. Inadequacies in the land, finance, real estate, labor, and healthcare markets have been identified and gradually removed.

With these advantages, there is a good chance that Vietnam will overcome difficulties and continue to thrive.

But there are also many internal challenges. Forecasts for the global economy in 2023 are becoming increasingly bleak. The situation of high inflationary pressure across economies would not go away quickly, forcing many countries to continue tightening monetary policy.

This may lead to the risk of a global economic recession, making it harder for Vietnam to facilitate trade, attract FDI, and mobilize external resources for development.

Vietnam's high inflationary pressure next year would pose a great challenge for macroeconomic management, while the budget collection may fall due to the ongoing struggle of businesses.

Strict measures from the Government to restore order in the real estate and securities markets have more or less caused negative impacts on market sentiment. Existing issues in the economy, including the legal bottlenecks for property projects, and lack of capital access also need time to be resolved

In this context, Vietnam’s GDP growth target of 6.5% and inflation at 4.5% for next year would be a major challenge.  

Where is the growth driver in 2023?

The economy is still on an upward trend with positive foreign capital inflow and a high export growth rate. Prestigious organizations such as the World Bank, and Asian Development Bank have forecast that Vietnam's economy in 2023 will continue to grow higher than the 6.5% target. Inflation is expected to pick up, before gradually returning to below 4%.

However, the Government needs to stay cautious and focus on identifying limitations and disadvantages to ensure the highest growth possible proactively.

It is necessary to closely analyze and anticipate the domestic and international situation to proactively come up with solutions for both immediate and long-term, in which the aim is to stabilize the macro-economy, control inflation, and promote growth.

Policies to stabilize macroeconomics in the coming time need to be more flexible, while  violations in the capital market are expected to be quickly and fairly resolvable, ensuring the legitimate interests of investors.

Other tasks include harmonizing macroeconomic policies, balancing interest rates and exchange rates, controlling inflation and growth, supporting people, businesses and balancing the budget in the immediate future; and accelerating the disbursement of public investment fund.

In 2023, the National Assembly ratified a resolution to allocate nearly VND727 trillion ($30.1 billion) for the Socio-economic Recovery and Development Program, so the priority is to ensure the effective implementation of this funding.

When the economy is in decline, increasing public investment is the right direction to promote growth. The problem is how to maximize state resources to support economic development. In addition to the traditional forms of public investment such as infrastructure construction, public investment can be expanded to new forms, such as ordering enterprises and corporations in the production of essential products for the country.

The domestic market of nearly 100 million people will be an extremely important support for businesses, even in the context of the world economy falling into crisis and declining global demand. Right now, it is necessary to support enterprises so that they can maintain their shares in the domestic market and at the same time exploit the strengths of free trade agreements to expand and diversify export markets.

In 2023, businesses and investors should also be active in restructuring and accelerating the digital transformation to reduce costs and increase transparency for better state governance.

These solutions would help increase the resilience of the economy and businesses so that 2023 will be a positive year for all.

Another point is that there must be substantial institutional reform that is in line with market principles, along with measures to improve the effectiveness and efficiency of state management. In this regard, Vietnam could continue to maintain its fast and sustainable economic growth.