On August 26, the World Bank released its “Taking Stock” report, providing an updated assessment of Vietnam’s economic outlook. Dorsati Madani, a senior economist at the WB, highlighted that Vietnam’s GDP grew by 6.4% in the first half of the year, surpassing the 5% growth recorded in the first half of 2023. This recovery was largely attributed to the revival of export manufacturing and stronger levels of investment and consumption.
Specifically, the export and import of goods exceeded expectations for the first half of 2024, with exports and imports rising by 16.9% and 17% respectively compared to the same period last year. The manufacturing sector, particularly industrial processing, saw a 7% growth from a low base, making it a key driver of economic expansion, contributing a quarter of the overall GDP growth.
The services sector was another major contributor, accounting for more than half of GDP growth, with a robust 7.4% increase. Sectors related to exports, such as transportation and warehousing, benefited from the resurgence in goods exports. The hospitality industry also rebounded, with international tourist arrivals reaching 8.8 million by June, surpassing pre-COVID levels.
Despite these positive developments, Madani cautioned that Vietnam’s economy has not yet returned to its pre-pandemic growth trajectory. Consumer spending, in particular, remains subdued.
Retail sales increased by 8.8% in the first half of 2024, driven by stable growth in goods sales since late 2022. However, this is still lower than the pre-pandemic average of 11.6%. Real income growth also remained weak, standing at 2.5% year-on-year in June, which is consistent with the average annual growth rate of 2.7% since 2022 but significantly below the pre-pandemic trend of 8.4%.
“As a result, demand for non-essential goods and services, such as cars, household appliances, tourism, and housing upgrades, remains low, reflecting persistently weak consumer confidence,” Madani remarked.
Private sector investment has shown some improvement but continues to lag behind pre-COVID growth rates. Total investment increased by 6.7% year-on-year in the first half of 2024, up from 4.1% in the same period of 2023, but still below the pre-pandemic average of 7.1%. Domestic private sector investment, which accounts for nearly 60% of total investment, contributed 3.9% to growth in the first half of 2024, lower than the annual average of 4.7% from 2017 to 2019.
Meanwhile, public investment growth slowed to 4% in the first half of 2024, down from 20.5% in the same period of 2023.
Balanced outlook of opportunities and risks
Looking ahead, Sebastian Eckardt, the World Bank’s Lead Economist for Macroeconomics, Trade, and Investment in the East Asia Pacific region, expressed optimism about Vietnam’s economic outlook, with opportunities and risks seen as generally balanced. The WB forecasts a 6.1% growth rate in 2024, rising to 6.5% in 2025 and 2026.
On the opportunity side, the WB noted that continued export growth and signs of recovery in the real estate sector, following the resolution of the corporate bond market freeze and the implementation of the Land Law in August, are expected to bolster domestic demand in the second half of 2024 as investor and consumer confidence improve. The current account balance is projected to remain in surplus, while the government is returning to fiscal consolidation, with inflation expected to ease from 4.5% in 2024 to 3.5% in 2026.
However, one of the key risks to economic growth is the uncertainty of global economic conditions, which could be weaker than anticipated, particularly among Vietnam’s major trading partners such as the U.S., the European Union, and China. “These developments could negatively impact Vietnam’s export manufacturing sector and overall growth,” Eckardt warned.
Domestically, potential instability in the macroeconomic environment could undermine consumer and investor confidence, affecting consumption and investment. The real estate market may take longer to recover than expected, adversely impacting private sector investment. If banks’ asset quality continues to deteriorate, their lending capacity could be compromised.
Eckardt also noted that Vietnam is one of the most climate-vulnerable countries globally, and increasingly frequent climate-related natural disasters could pose a significant risk to economic growth.
To sustain growth in the coming years, Eckardt emphasized the need to boost public investment to stimulate short-term demand while addressing infrastructure deficits, particularly in energy, transportation, and logistics, which are currently bottlenecks to growth. Additionally, close monitoring of banks’ asset quality is crucial due to the rise in non-performing loans.
“In order to maintain the growth momentum from now until the end of the year and beyond, policymakers should continue institutional reforms, accelerate public investment, and manage financial market risks,” Eckardt recommended.
Source: vietnambiz
Compiled by VietnamCredit
