Manufacturing electricity cables at VSIP Hai Duong. (Photo: Dang Anh)

A report released by the World Bank in August noted that Vietnam’s economic growth is expected to pick up in 2024 thanks to a recovery in the export of manufactured goods, tourism, consumption, and investment.

Return to growth orbit

In its report, the World Bank predicted that Vietnam’s economic will reach 6.1% in 2024 and accelerate to 6.5% in 2025 and 2026. Compared to the 5% growth seen in 2023, the Vietnamese economy is recovering and is expected to achieve higher growth in the coming time.

The World Bank’s projections assume that exports still grow but at a slower pace, while the property market will recover after the freeze in the corporate bond market is resolved and the revised Land Law took effect from August. The World Bank stated that Vietnam’s economic outlook is positive with broadly balanced risks.

Risks to the Vietnamese economy may come from both domestic and external factors. Since the Vietnamese economy is highly open to the global economy, if growth is lower than expected among its key trading partners, such as the US, the EU and China, it will affect Vietnam’s export sector and the broader economy.

Domestically, the property market may take longer than expected to recover, negatively affecting the private sector’s investment. Among the factors that affect Vietnam’s export capacity, the World Bank also mentioned the possibility of power shortages if abnormal heat drives power consumption demand. However, the World Bank noted that Vietnam can also be supported by more positive developments.

They are more relaxed monetary policies in major economies and the possibility of the Fed’s rate cut in September 2024, which can boost Vietnamese exports, reduce global financial mobilisation costs, and narrow the VND/USD exchange rate gap, thereby producing a positive effect on Vietnam’s banking and financial sector.

Recovery maintained

Assessing the overall socio-economic development situation since the start of the year, the Ministry of Planning and Investment (MPI) stated that the Vietnamese economy has witnessed relatively clear recovery across various fields and recorded many important achievements which are highly appraised by international organisations and enterprises. The macroeconomy is fundamentally stable, inflation is curbed, and spending deficit, public debt, government debt and foreign debt are also under control.

However, the MPI also pointed out that difficulties and challenges remain considerable ahead, while growth drivers have not recorded clear acceleration. MPI Minister Nguyen Chi Dung stressed that this reality requires that sectors and localities coordinate closely and effectively, further promote the spirit of accompanying businesses, and take bold measures to maintain the economy’s growth momentum, while striving to achieve a growth rate of 6.5-7.4% in the third quarter as the foundation to achieve and exceed the socio-economic developments targets for 2024.

In the meantime, the World Bank also stated that the Vietnamese economy is recovering but its growth remains below pre-pandemic levels. Consumer spending is still lower than before COVID-19. Retail sales grew by 8.8% but the figure is still lower than the average 11.6% seen before the pandemic.

Private sector investment growth improved in the first half of 2024 (up 3.9%) but was still lower than the annual average of 4.7% during the 2017-2019 period. Public investment growth also fell to 4% in the first half of 2024, compared to 20.5% in the first half of 2023. Another problem of the Vietnamese economy is rising bad debt although credit growth is not so strong. The volume of bond issuance is increasing again but the bond repayment pressure remains high.

Sebastian Eckardt, Practice Manager for Macroeconomics, Trade and Investment in the East Asia and Pacific Region, said that to sustain growth momentum not only for the rest of the year but also the medium-term, the authorities should deepen structural reforms and step up public investment while carefully managing emerging financial risks.

According to the World Bank, as the economy is not yet back to its pre-pandemic growth path, enhanced public investment would provide short-term stimulus while also addressing emerging infrastructure gaps. It added that structural reforms are crucial to sustain long-term growth prospects.

The authorities should accelerate structural reforms to strengthen the regulatory environment in critical backbone services to green the economy, build human capital, and improve the business environment. At the same time, further trade diversification and deepening regional trade integration and connectivity will also reduce exposure to global trade fragmentation and ensure more resilient growth.