Võ Trí Thành

The General Statistics Office on Friday unveiled a comprehensive report on Việt Nam's socio-economic development for the third quarter and the first nine months of this year. The report demonstrates a less daunting economic landscape, albeit one that remains exceedingly challenging if the nation is to achieve the economic growth targets set by the National Assembly.

As of the third quarter of 2023, Việt Nam's economy has traversed two-thirds of the year, yet the Gross Domestic Product (GDP) has only expanded by a modest 4.24 per cent in comparison to the same period last year. This growth rate, though higher than the rates recorded in the corresponding nine months of 2020 (2.19 per cent) and 2021 (1.57 per cent) during the 2011-23 period, falls short of the ambitious 6 per cent growth target set by the National Assembly for the whole year, let alone the more ambitious target set by the Government at 6.5 per cent.

The economic recovery following the COVID-19 pandemic has decelerated since the middle of the third quarter of last year, despite the entire year of 2022 achieving an impressive growth rate of 8 per cent. The current difficulties and obstacles stem from an unfavourable external environment and challenges within the economy itself. The global economy, including many of Việt Nam's primary trading and investment partners, is experiencing a downturn. Moreover, high inflation and stringent financial and monetary conditions exert substantial pressure on the management of monetary policy, exchange rates and interest rates in Việt Nam. The financial market, banking system and real estate market are witnessing fluctuations, contributing to a decline in investors’ confidence.

Forecasts from reputable organisations echo the daunting prospects. The Asian Development Bank (ADB), during the launch of the "Asian Development Outlook September 2023" last week, retained its prediction for Việt Nam's 2023 GDP at 5.8 per cent. However, this figure is significantly lower than the ADB's earlier forecast in April, which stood at 6.5 per cent. Other major entities, including the Organisation for Economic Co-operation and Development (OECD), the World Bank (WB) and the International Monetary Fund (IMF), have downwardly revised their projections to 4.9 per cent, 4.7 per cent, and 4.7 per cent, respectively. Standard Chartered Bank and UOB Bank offer more conservative estimates of 5.4 per cent and 5.2 per cent, respectively.

Expectations at the end of the second quarter showed that, for Việt Nam to attain a growth rate of 6-6.5 per cent, the last two quarters of the year would need to achieve a growth rate of 8-9 per cent. However, the data from the third quarter paints a much grimmer picture, indicating a necessity for double-digit growth in the final quarter.

Despite these challenges, glimmers of positivity persist. The economic recovery remains on course, albeit at a measured pace. GDP in the third quarter of 2023 was estimated to rise by 5.33 per cent compared to the same period last year, reflecting a positive trend with consecutive quarterly increases (compared to 3.28 per cent in the first quarter, 4.05 per cent in the second quarter).

Several sectors contributed to this positive trajectory. The agricultural sector continues to exhibit robust growth, and both export and industrial production, including processing and manufacturing, show encouraging signs of recovery. Although export turnover decreased by 12.1 per cent in the first six months, the decline in the first nine months was only 8.2 per cent. Industrial production in the first nine months of 2023 is estimated to increase by 1.65 per cent over the same period last year (compared to the first quarter’s decrease of 0.75 per cent and second quarter’s increase of 0.95 per cent, the third quarter increased by 4.57 per cent). The processing and manufacturing industry also showed an increase of 1.98 per cent (first quarter decreased by 0.49 per cent; second quarter increased by 0.6 per cent; third quarter increased by 5.61 per cent).

The retail sales index, despite exhibiting a downward trend, remains at a commendable level. Total retail sales of goods and consumer service revenue increased by 9.7 per cent in the first nine months of the year compared to the same period last year (a bit slower than 10.9 per cent in the first half).

Nevertheless, the overarching challenge of achieving the growth target of 6-6.5 per cent for the entire year persists.

The Ministry of Planning and Investment on Saturday revised its growth projections for both the fourth quarter and the entirety of 2023. The most optimistic outlook anticipates a 6 per cent economic growth for the entire year, necessitating a 10.6 per cent increase in the fourth quarter. The second scenario envisions a 5.5 per cent economic growth in 2023, with an 8.8 per cent increase required in the fourth quarter. The least favourable scenario involves a 5 per cent growth, demanding a 7 per cent increase in the fourth quarter.

Lower-than-expected growth this year may also impacts the 5-year plan (2021-2025). The pressure intensifies in the last two years of the plan, especially after the initial two years faced significant challenges due to the pandemic and global geopolitical fluctuations.

Calculations by the Ministry of Planning and Investment highlight that if the 6.5 per cent growth target is met this year, an average annual growth rate of 7.76 per cent in 2024-25 would be required to achieve the 5-year target of 6.5-7 per cent. If growth in 2023 is only 6 per cent, then an average annual growth of 8 per cent in 2024-25 would be necessary. These are formidable growth rates, particularly considering the multitude of uncertain factors in the global economy and the potential risks within the domestic economy.

The implementation of the economic restructuring programme also faces considerable hurdles, with only 10 out of 30 targets set by the National Assembly's Resolution 31/2021/QH15 projected to be achievable. Thirteen goals are proving to be particularly challenging, including productivity targets.

The average labour productivity growth rate in 2021-22 was modest, standing at approximately 4.58 per cent and 4.75 per cent, respectively. This figure was notably lower than the average labour productivity growth rate observed in the 2016-20 period (6.05 per cent) and falls short of the established target (6.5 per cent).

To enhance economic growth results, in addition to expecting more favourable external factors, effective coordination of monetary policy, fiscal easing, and reform efforts to reduce transaction costs for businesses and restore market confidence are paramount. Support policies, including demand stimulation, market diversification, public investment promotion, and the utilisation of Free Trade Agreements (FTAs), should continue. Business support measures, including relaxing, freezing debt, reducing market interest rates, and implementing preferential credit packages, alongside fiscal policies that involve tax and fee reductions, should persist to sustain and fortify the business environment.

Despite the uncertainties and risks in the global landscape, sustainable development, green growth, and digital transformation remain irreversible trends. Confronting these challenges requires not only addressing immediate concerns but also committing to ongoing reform and alignment with these major trends. By building strong foundations for development, Việt Nam can create a resilient and sustainable economy that instills confidence in long-term growth and stability. It's imperative to look beyond immediate issues and adopt a proactive approach to foster a Vietnamese economy that will continue to grow, stabilise and develop sustainably in the long term.

Võ Trí Thành is a senior economist at the Central Institute for Economic Management (CIEM) and a member of the National Financial and Monetary Policy Advisory Council. A doctorate in economics from the Australian National University, Thành mainly undertakes research and provides consultation on issues related to macroeconomic policies, trade liberalisation and international economic integration. Other areas of interest include institutional reforms and financial systems. He authors Việt Nam News column Analyst’s Pick.