WB: Vietnam’s economy is recovering and growing

Mixed signs about recovery in early 2024

After experiencing a period of deceleration in 2023, the economy is showing some signs of recovery in early 2024. Exports are recovering, domestic consumption and private investment are also on the rise.

Exports at constant prices are expected to increase by 3.5% in 2024, reflecting gradually improving global demand.

In addition, the real estate sector is also expected to recover stronger at the end of this year and next year, boosting domestic demand as investors and consumers gradually regain confidence. Total investment and private consumption at constant prices are expected to increase by 5.5% and 5% in 2024, respectively.

In the first quarter of 2024, the economy achieved growth of 5.66% (compared to the same period last year), mainly due to the low starting point effect in exports, while consumption and investment only recovered. recover gradually.

Merchandise exports rebounded strongly, growing 17.2% y/y in the first quarter of 2024 compared to -11.6% y/y, driven by strong increases in exports to the US and Europe ( respectively increased 25.5% and 16.3% over the same period last year)…

Real investment (at constant prices) increased by 4.7% over the same period compared to zero growth in the first quarter of 2023, thanks to the strong contribution of FDI, public investment increased slightly, while investment Private sector is still weak.

Vietnam’s foreign economic position improved in 2023, thanks to a large current account surplus. The balance of payments (BOP) reaches a surplus of 1.3% of GDP compared to a deficit of 5.6% of GDP in 2022.

The current account surplus is widened to 6.7% of GDP in 2023, from a deficit of 0.3% of GDP in 2022.

The reason is because the goods trade balance reached a large surplus (10% of GDP), remittance flows continued to be maintained (estimated at 3.1% of GDP), while the service trade account deficit decreased ( down to -2.2% of GDP for 2023 from -3.1% of GDP in 2022) as foreign tourist arrivals continue to recover, reaching nearly 12.6 million in 2023, compared to 3. 7 million visits in 2022.

The increase in merchandise trade surplus was due to a decrease in imports (-14.1% over the same period last year), stronger than the decline in exports (-8.5% over the same period last year).

On the other hand, the financial account’s small deficit at 0.8% of GDP, as net short- and medium-term capital outflows were higher than foreign investment (FDI) disbursements, remained steady (at 4 .6% of GDP). Persistent differentials between domestic and international interest rates contribute to net capital outflows.

The balance of payments surplus helps raise international reserves from 87.1 billion USD at the end of 2022 to 93.3 billion USD at the end of 2023, equivalent to 3.3 months of imports

Policies to support growth and promote reform

The WB report commented: The Government plans to continue maintaining a relatively expansionary fiscal policy in 2024, but will return to tightening fiscal policy in the following years.

Looking internationally, the WB believes that: Risks and opportunities for the above forecast outlook are generally in balance, with lower-than-expected growth in developed economies and China possibly reducing demand. foreign demand for Vietnam’s export products.

Furthermore, rising geopolitical tensions and climate-related natural disasters will increase risks for Vietnam.

Domestically, the recovery speed of the real estate market is not as expected, which may affect investor psychology and private sector investment.

Looking positively, higher-than-expected global growth will help Vietnam’s exports recover stronger than expected. Sustained expansionary fiscal policy measures can support economic recovery, while stabilizing the financial sector should remain a top priority Policy support should continue to spur recovery .

Continuing to maintain efforts to speed up the disbursement of public investment will support short-term aggregate demand and help narrow the emerging infrastructure gap.

Regarding monetary policy, the room to further cut interest rates has become more limited, due to the interest rate difference between domestic and international markets and due to the pressure that may cause on exchange rates…

Continuing the momentum of recent reforms, steps to mitigate vulnerabilities and risks in the financial sector remain extremely urgent in the coming time.

Competent authorities can issue policies to improve the capital adequacy ratio of banks, and at the same time strengthen the institutional framework for safety supervision (including to detect and handle problems that arise in cross-ownership relationships between banks and corporate groups), early intervention, handling weak banks and crisis management.

Although the Law on Credit Institutions has been improved through recent amendments, there are still inadequacies in some contents, including the consolidated supervision of banking corporations and credit institutions, Authority to handle weak banks, legal risk protection for supervisory officials.

The priority is to strengthen the role of the State Bank in the above areas in upcoming legal reforms on the financial sector, including through amendments to Vietnam’s State Bank Law. Finally, structural reforms are essential to maintaining long-term growth prospects.

The report emphasizes the importance of continuing to support the economy through fiscal policy to underpin the recovery. The report recommends accelerating the pace of implementation of infrastructure investment projects funded by public resources.

This would help stimulate the economy further, with potential GDP growth of 0.1 percentage point for every 1 percentage point increase in public investment as a proportion of GDP.

Meanwhile, in terms of monetary policy, the room for further interest rate cuts is limited due to the interest rate difference between domestic and international markets.

With budget revenues likely to remain weak while public spending is boosted, including planned salary increases for civil servants and accelerating public investment, the budget deficit is expected to increase to 1. 6% of GDP in 2024, before falling to 1.1% of GDP in 2025, in line with the Fiscal Strategy 2021-2030.

Mr. Sebastian Eckardt, Director of the World Bank’s East Asia and Pacific Region for Macroeconomics, Trade and Investment, said: Investing in public infrastructure projects creates many long-term benefits in addition to stimulating investment. like the economy immediately.

Efforts to strengthen public investment management will also address critical infrastructure bottlenecks in energy, transportation and logistics, which underpin Vietnam’s long-term economic growth.

According to Anh Minh/baochinhphu.vn