2023 growth target a tough ask: statistics official

Achieving 6.5% growth in the face of current economic hurdles will be a huge challenge for Vietnam, given a weaker than expected first half performance. Nguyen Mai Hanh, vice director of the General Statistics Office’s system of national accounts department, elaborates on the issue.

Vietnam’s economic growth in the first six months of the year is estimated at 3.72%, much lower than the set target. Why did this happen?

According to the growth scenario sketched out in the government's Resolution No. 01/NQ-CP dated January 6, 2023, to achieve the growth target of 6.5% in 2023, the Vietnamese economy needed to expand 6.2% in the first half of the year (5.6% in Q1 and 6.7% in Q2).

However, the actual growth, estimated at 3.72% (3.28% in Q1 and 4.14% in Q2), was much lower, mainly because of low expansion of the industrial sector, just 0.44%. Tightening of the monetary policy has had a strong impact on investment and consumption activities, among other things.

The world situation continued to be complicated and unpredictable and strategic competition among big countries became more intense, while high inflation in some major import markets affected export opportunities and the market reach of domestic enterprises.

The global economy further declined, with slowdowns seen in many major economies. International organizations estimated that global economic growth in the first half of 2023 was up slightly from the prediction made at the beginning of the year, but 0.5-1 percentage point lower year-on-year. Risks to the banking system, public debt and corporate debt increased. China's economy recovered slowly with many uncertainties.

Domestically, the production recovery in all economic sectors, especially the manufacturing industry, was not really sustainable. The resilience of key industrial sectors like textile-garment, food processing, electronic product manufacturing, wood processing, automobile manufacturing, and metal production remained weak.

The number of enterprises newly established and returning to the market in the first six months decreased 2.9% year-on-year, while the number of enterprises shutting down rose 19.7%.

Credit growth was low, reaching only 2.58% and 3.13% in the first and second quarters respectively, making it difficult for businesses and the economy to absorb capital. The real estate market remained gloomy, resulting in limited circulation of cash flows, especially in the context of huge corporate bond repayment pressure in 2023.

Public investment disbursement was slower than required although ministries, agencies and localities created all favorable conditions possible for investors and contractors to accelerate the progress of projects.

Risks emerged in key markets like currency, securities, corporate bonds and real estate showed risks. Liquidity shrank. Businesses’ access to capital was also a challenge.

With such a low first-half economic expansion, can Vietnam achieve 6.5% growth for the whole year?

To reach the 6.5% growth target, the economy needs to grow at over 9% in the second half. This is a huge challenge in the current economic situation. Some economic sectors must achieve particularly strong growth. For example, the manufacturing and processing industry must grow over 13.4%, electricity production and distribution 13.6%, construction 8.7%, wholesale and retail 8.5%, transportation and warehousing 9.2%, and accommodation and food services 12.3%.

We can see that our economy is still under a lot of pressure from the world market, which is forecast to experience low growth in 2023, so what are our second half prospects?

Despite many difficulties, there are some positive factors that can boost Vietnam's economy in the remaining months of the year,

In production, the agro-forestry-fisheries sector has maintained good growth, ensuring stable supplies for domestic consumption and export. A slight increase in industrial production in recent months is a good sign for the second half. The service sector is expected to continue expanding due to increased tourism demand.

The State Bank of Vietnam’s policy interest rate cut in June will help businesses access credit and clear up difficulties in production.

Import and export activities see some positive signs as China, a major consumer and supplier of cheap goods and raw materials to Vietnam, has reopened. Besides, despite low world trade in goods in the first half, demand in some developed economies such as the U.S. and Japan shows signs of increasing again.

Domestic consumption has recovered after the Covid-19 pandemic and is expected to increase due to the expectation that tourism will improve in the near future. Climbing domestic demand will make the commodity market vibrant and safe in the context of unpredictable world economic fluctuations.

Tourism activities will become vibrant, with clearer signs of tourism growth in the coming months. An increase in the number of international visitors to Vietnam will particularly help improve the situation.

Disbursement of public investment has been promoted, focusing on projects in the medium-term public investment plan and the socio-economic development and recovery program. The trend of shifting foreign investment flows into Vietnam will also stimulate demand and positively impact the economy. This will be a main driving force for economic development in the last six months of the year.

A 2-percentage-point reduction in value added tax (VAT) from July 1 to December 31 will contribute to lowering production costs and product prices, helping businesses increase their resilience and expand production and business.

Vietnam is poised to attract FDI flows from Japanese, South Korean and Taiwanese enterprises. This will help diversify the supply chains of goods from Vietnam.

As a result, Vietnam’s economic growth is likely to improve in the coming quarters. However, with many internal and external difficulties, the expansion will not be as high as expected.

What should the government do at this juncture?

I think it is not just the government… businesses and every citizen needs to make great efforts and show high determination to create synergies. Authorities at all levels should proactively implement flexible management measures in line with new contexts, promptly respond to changes and focus on effectively and synchronously implementing policies to support socio-economic recovery and development.

Firstly, it is necessary to maintain macroeconomic stability by implementing a proactive, flexible and effective monetary policy in combination with fiscal and other macro policies that will support enterprises recover and develop production and business. Credit should be provided for production and other business activities to create a driving force for growth. The exchange rate needs to be managed properly.

Vietnam must strengthen resilience and security of the financial and banking system, unleash capital flows and promote credit growth to help businesses overcome difficulties and boost production and business.

Secondly, Vietnam should take drastic solutions to promote disbursement of public investment capital and speed up progress of key national and inter-regional infrastructure projects.

Thirdly, focus should be placed on boosting domestic production and consumption, especially of products using local input materials, in order to limit imports and ready supply. Regular reviews should be carried out to promptly remove difficulties and obstacles for enterprises facing capital shortages, high input material prices and difficulties in product sales.

Fourth, it is necessary to implement appropriate solutions to stimulate trade and service demand, develop tourism and promote exports to traditional markets, focusing on agriculture, forestry and fisheries products. We should expand and diversify export markets and products and effectively tap signed free trade agreements (FTAs). Timely policy adjustments must be made to attract more high quality foreign direct investment.

Fifth, Vietnam must ensure stable power supply to meet the needs of production and other business activities.

Sixth, it should continue to implement policies to support production and improve the quality of agricultural products in line with the standards of demanding markets and call for investment in farm produce processing in order to consume locally made products, reduce production costs and increase profits for farmers.

In a national teleconference between the government and localities and the regular cabinet meeting last Tuesday, Minister of Planning and Investment Nguyen Chi Dung sketched out two growth scenarios for the third quarter and the whole of 2023.

In the first scenario, to reach an annual growth of 6%, Vietnam’s economy must grow 6.8% in the third quarter and 9% in the fourth quarter, 0.3 and 1.9 percentage points higher than the scenario outlined in the government's Resolution No. 01, respectively.

In the second one, for a whole-year growth of 6.5%, the respective Q3 and Q4 expansions must be 7.4% and 10.3%, 0.9 and 3.2 percentage points higher than the scenario mentioned in the resolution.