Following a period of slowdown in 2023, the Vietnamese economy is exhibiting first indicators of recovery

Madam Dorsati Madani, Senior Economist at the WB in Vietnam, said, after experiencing a slowdown in 2023, the economy is showing mixed signs of recovery in early 2024.  While exports are recovering, consumption and private domestic investment are growing more gradually. Real exports are expected to grow by 3.5% in 2024, reflecting gradual improvement in global demand. In addition, a turnaround in the real estate sector is anticipated later this year and next, bolstering domestic demand as investors and consumers regain confidence. Real total investment and private consumption are projected to increase by 5.5% and 5% in 2024, respectively.

However, she said, Vietnam still faces many risks. Potential downward risks may result from lower-than-expected global growth (especially in the United States, the eurozone and China). Besides, the real estate market is recovering slower than expected. Asset quality in the financial sector continues to deteriorate due to weak economic performance (real estate and consumer credit sectors). Upward risks are Vietnam's main trading partners recovering better than expected (the US, the EU and China). Vietnam has reformed the real estate sector and the Land Law will facilitate this sector through which domestic private investment will recover.

She underscored the importance of sustained fiscal policy support to reinforce the recovery. Vietnam should expedite infrastructure investment projects financed by public resources. This will help further stimulate the economy, with an additional potential 0.1 percentage point of GDP growth for every 1 percentage point increase in public investment as a share of GDP. On monetary policy, the space for additional interest rate cuts is limited due to the interest rate differential between domestic and international markets. Vietnam needs to continue more enabling policies.

Continued weak revenue collection and increased spending, including the planned salary increases for civil servants and accelerated investment public investment, are expected to widen the fiscal deficit to 1.6% of GDP in 2024, before narrowing to 1.1% in 2025, in line with the country’s Fiscal Strategy for 2021-2030.

Ensuring the stability of the financial sector remains paramount to the Vietnamese economy. It is necessary to strengthen the powers of the State Bank of Vietnam to enhance its oversight of banks and credit institutions, handle weak banks and provide legal defense for supervisory officials.

In addition, it is necessary to focus on managing potential risks associated with increasing bad debts, including due to declining asset values in the real estate market. Capital buffers of commercial banks are relatively thin, and the real estate market’s downturn could further depress their capital.

Structural reforms can revitalize the economy, said Dorsati Madani, adding that it is necessary to loosen regulations, improve access to finance and accelerate investment in power projects.

Mr. Sebastian Eckardt, World Bank East Asia and Pacific Practice Manager for Macroeconomics, Trade, and Investment, said that investing in public infrastructure projects goes beyond immediate economic stimulus. Efforts to enhance public investment management will also address critical infrastructure gaps in energy, transportation and logistics, which are fundamental for Vietnam's long-term economic growth.