Prime Minister Pham Minh Chinh last week told ministers and leaders of localities nationwide at a conference that the economy in the first six months of this year has strongly recovered to the level seen in the pre-pandemic period.

Government keen to push ahead of initial growth targets, photo VNA

The Ministry of Planning and Investment (MPI) reported to the government that GDP in Q2 has strongly bounced back, at 6.93 per cent on-year, making the first half of the year grow 6.42 per cent, far higher than the 3.84 per cent growth recorded in the same period last year, and also higher than the 5.5-6 per cent increase set early this year by the government. In June, the Purchasing Managers’ Index hit 54.7 points, the highest in ASEAN.

“Based on such encouraging results, we must make greater efforts to reach a growth rate of 6.5-7 per cent in Q3, and then we will determine a new, proper growth goal for Q4,” PM Chinh stated. “We must place the prime priority on boosting economic growth closely linked with macroeconomic stability, controlling inflation, and ensuring all major balances of the economy.”

The MPI has submitted two fresh economic growth scenarios to the government for consideration. Under Scenario 1, the whole year is expected to grow 6.5 per cent – the highest level earlier set by the National Assembly (NA). In which growth for Q3 and Q4 will be 6.5 and 6.6 per cent, respectively.

Under Scenario 2, the entire year is set to grow 7 per cent, higher than the NA’s target. In which growth for Q3 and Q4 will likely be 7.4 and 7.6 per cent, respectively – 0.7 and 0.6 per cent higher than the scenario issued in April.

“We prefer this scenario. Though the 7 per cent rate is high, we can reach it as we are making great efforts to overcome limitations,” said Deputy Minister of Planning and Investment Tran Quoc Phuong.

He pointed out a series of new advantages for Vietnam to hit the 7 per cent growth rate.

“Vietnam is rolling in the world’s growth uptrend, while there has been positive growth in the economy’s key impetuses such as investment and export, with a rise in enterprises’ export orders,” Phuong said. “Also, tourism has strongly recovered, with our expectation that Vietnam will welcome 14-15 million international tourist arrivals. This will have positive impacts on the service sector.”

In addition, the three laws on land, housing, and real estate business are expected to take effect in August, enabling it to warm up the property market in the latter half of this year.

“This will also have positive impacts on economic growth,” Phuong said. “Many localities have also recorded high growth since early this year.”

In an example, Ho Chi Minh City reported that its regional GDP in the first six months hit 6.46 per cent on-year, with total retail and consumption service revenue rising 8.8 per cent on-year, exports up 13.1 per cent on-year, and index for industrial production up 5.5 per cent.

“We have focused on implementing many key national infrastructure projects to facilitate business and investment,” said municipal Chairman Phan Van Mai. “The city will also centre on carrying out sturdy solutions to drive the municipal economic growth to a high rate of 7-7.5 per cent this year.”

Hanoi also reported that its six-month regional GDP increased 6 per cent as compared to the same period last year, when the on-year growth rate sat at 5.97 per cent. Total state budget revenue climbed 15.6 per cent on-year.

The city’s total retail and consumption service revenue climbed 10.7 per cent on-year, while the number of international tourist arrivals welcome ascended 48.4 per cent on-year. Hanoi has set a target of growing 6.5-7 per cent this year.

“Hanoi has and will continue boosting the implementation of many infrastructure projects to facilitate enterprises and the public,” said municipal Deputy Chairman Ha Minh Hai. “From now until the year’s end, Hanoi will continue boosting public investment and developing urban infrastructure and many roads such as the ring road 4 and put into operation of a railway from Nhon area to the Hanoi railway station.”

PM Chinh has also ordered ministries and localities to drastically speed up disbursement of public investment, reaching at least 95 per cent of total capital in 2024. “Site clearance has to be accelerated to construct key projects,” he stressed.

Such key projects include Long Thanh International Airport, the eastern North-South Expressway, ring road 4 of in Hanoi, ring road 3 in Ho Chi Minh City, and various expressways. Their investment has been determined by the NA in a bid to boost infrastructure development, which is one of the three major breakthroughs of the 2021-2030 Socioeconomic Development Strategy.

The government has determined that public investment continues to be the key driver for economic recovery and growth in 2024, when Vietnam will earmark $27.37 billion for public investment, most of which will be for investing in infrastructure development.

Paulo Medas, mission chief for Vietnam International Monetary Fund Economic growth is projected to recover to close to 6 per cent in 2024, supported by continued strong external demand, resilient foreign direct investment, and accommodative policies. Domestic demand growth is expected to remain subdued as corporates navigate through high debt levels, while the real estate sector will only fully recover over the medium term. Inflation is expected to hover around the State Bank of Vietnam’s target of 4-4.5 per cent this year. Downside risks are high. Exports, a key driver for Vietnam’s economy, could weaken if global growth disappoints, global geopolitical tensions persist, or trade disputes intensify. Domestically, persistent weakness in the real estate sector and corporate bond market could weigh more than expected on banks’ ability to expand credit and hurt economic growth and undermine financial stability. Given easy monetary conditions, if exchange rate pressures were to persist for longer it could lead to a larger pass-through to domestic inflation. To sustain high economic growth amid less-favourable demographics and climate change challenges, Vietnam needs a new wave of reforms. Increasing productivity, further investing in human and physical capital, and incentivising private investment in renewable energy is key. Improving the functioning of the capital markets would also help boost productivity. In this regard, developing a market-based sovereign bond market is vital to facilitate broader capital market development and to make monetary policy transmission more effective.