In the backdrop of continued complicated global economic and political dynamics, Vietnam's economy has showed some bright spots. 

Several positive signals

According to Saigon Ratings, GDP will expand by roughly 4.5% 0.3% in the first nine months of 2023 compared to the same period last year. The service sector is predicted to contribute the most to this development, with a 7.3% gain. Meanwhile, agriculture, forestry, and fisheries are predicted to rise by around 2.8% in the first nine months of the year, while the industrial and construction sectors are expected to grow by about 1.8%.

A favorable aspect is that GDP growth each quarter continues to rise, with growth reaching around 5.5% in the third quarter of 2023.

The Purchasing Managers' Index (PMI) for August rose to 50.5 points, breaking the 50-point mark for the first time in six months. While the global economy, particularly traditional export markets, is struggling, there has been an increase in new orders and new export orders following a five-month dip. S&P Global, on the other hand, warns that the PMI growth rate is not yet strong, since certain surveys show relatively weak demand.

Average inflation continues to fall when compared to the same period last year, despite an increased tendency when compared to the preceding month. This is mostly owing to global gasoline costs continuing to fall in recent months. In particular, the Consumer Price Index (CPI) for August 2023 climbed by 0.88% from the previous month, 2.02% from the end of 2022, and 2.96% from the same period last year. However, the average CPI grew by just 3.10% in the first eight months of 2023 compared to the same time in 2022.

Furthermore, overall retail sales of items and consumer service income continue to rise in comparison to the same period last year, demonstrating that consumer demand for vital goods and services is recovering. According to the General Statistics Office, total retail sales of products and consumer service income at current prices are expected to reach VND 4,043.9 trillion in the first eight months of 2023, a 10% rise over the same time last year.

The export-import scenario has also showed some bright spots, as has the budget's comeback of investment. Notably, newly registered international Direct Investment (FDI) for the first eight months of 2023 totaled USD 8.87 billion, up from USD 6.35 billion in the same period in 2022, suggesting Vietnam's sustained appeal as a prospective market for international investors. The first eight months of 2023 are expected to see USD 13.1 billion in FDI implementation, a 1.3% rise over the same period last year.

In terms of currency, the State Bank of Vietnam (SBV) has consistently decreased operating interest rates, resulting in a large reduction in deposit interest rates. In order to promote loan demand, commercial banks have actively decreased lending interest rates. Although lending interest rates have fallen more slowly than deposit interest rates, there is a clear downward trend in lending interest rates.

However, the domestic economy continues to confront a number of risks and challenges:

Exchange rate pressures have been rising since late June as a result of the SBV's expansionary monetary policy, which contrasts with the US Federal Reserve's tightening stance. Furthermore, surplus Vietnamese dong liquidity as a result of sluggish loan growth has exacerbated the interest rate differential between VND and USD.

Previously, VND loan rates were frequently higher than USD lending rates in the interbank market, but this tendency will change in June 2023. Overnight VND loan rates are now at 0.2% per year, whereas USD lending rates surpass 5% per year. Because of this circumstance, the VND has depreciated by 2% against the USD since early June 2023, with a 1.2% devaluation in the first three weeks of August alone.

Credit growth improved in August, although total growth for the first eight months of the year remained relatively modest, while non-performing loans increased. After a month of negative growth, credit returned to positive growth in August 2023, with credit increasing by roughly 5.5% compared to the end of 2022. This is much lower than the growth rate in the same time in 2022 (9.9%), although it has recovered following the July drop.

After recovering from the epidemic, the local economy is now suffering further negative effects from the global economy, which has undermined the resilience of fragile enterprises. Furthermore, the restructuring mechanism for loan repayment conditions and the maintenance of a debt group for clients experiencing problems as a result of Covid-19 will expire at the end of June 2022.

In addition, the real estate market, corporate bond market, and rising interest rate trend have made credit expansion difficult, while also increasing the proportion of non-performing loans.

Even while the corporate bond and real estate markets are progressively improving, they continue to face liquidity issues. Although many analysts feel that these two markets have passed the most difficult phase and that market recovery will be more visible in the fourth quarter, Saigon Ratings believes that the overall picture will remain rather challenging in the next period.

The major causes are the influence on company and investor confidence, as well as credit limit   issues. Lending interest rates remain unresolved, affecting both the supply and demand sides of the corporate bond and real estate markets, posing several issues.

Macroeconomic forecast for the full year 2023

Although meeting the full-year 2023 GDP objective of 6.5% may be difficult, recent encouraging developments led Saigon Ratings to project that the full-year 2023 growth rate would be slightly more than 5.5%, which is reasonably high compared to the region's and the world's current circumstances.

Given the persistent challenges in major world economies and weaker worldwide market demand, economic growth in a negative scenario might range between 5.0 and 5.5%. Global inflationary pressures may force central banks throughout the world to maintain tighter monetary policies for a longer period of time than predicted. Furthermore, a weaker global economy might restrict foreign investment and impede local economic recovery in the final quarters of 2023.

In a best-case scenario, GDP growth in 2023 might range between 5.5 and 6.0%, with foreign demand progressively returning as financial and monetary circumstances ease, paving the way for a significant economic recovery in the closing months of the year. In the late stages of 2023, the strong distribution of state investment packages, together with the recovery of private sector capital inflows, FDI, and rising foreign demand, would greatly accelerate the revival of the industrial and manufacturing sectors.