International organizations upbeat over Vietnam’s 2023 growth

Vietnam’s economy would continue outperforming its Southeast Asian peers this year amid headwinds worldwide, according to international organizations.

The country’s 2023 growth has been revised up to 6.8% in the ASEAN+3 Macroeconomic Research Office (AMRO)’s January update, higher than 6.5% in its October report. This is in contrast to the organization’s downward projection for most economies in ASEAN+3, comprised of the 10 ASEAN members and China (including Hong Kong), Japan, and South Korea.

In its update, AMRO estimated ASEAN+3 growth for 2023 at 4.3%, down from the 4.6 growth in its October projection. The downward adjustment is mainly due to the continuing weakness of Plus-3 economies, especially China, where growth has become much weaker.

AMRO says China’s 2022 growth was estimated at 3% and is forecast to grow by 5% this year, down from 5.3% in its October report. The ASEAN 2023 growth is forecast to be down 0.1 percentage points to 4.8%, much lower than the region’s 5.6% in 2022.

The drag on economic activity from aggressive monetary policy tightening in the U.S. and the Eurozone, according to AMRO, will be felt more fully this year, resulting in softer export orders for the ASEAN+3.

“With recession risks still haunting the United States and Europe, China’s economic reopening cannot come at a better time for the region. China’s stronger economy will support regional activity while the border reopening will boost intraregional tourism,” said AMRO chief economist Hoe Ee Khor.

AMRO puts its Vietnam inflation forecast at 3% this year, quite lower than the country’s 4.5% target.

The World Bank, in its latest Global Economic Prospects released earlier this month, expects Vietnam to be the fastest-expanding economy in ASEAN this year with 6.3%, a little lower than the Vietnamese National Assembly’s 6.5% target. Second and third after Vietnam are the Philippines (5.4%) and Cambodia (5.2%).

The bank expects slower growth of 4.8% and 4% this year for Indonesia and Malaysia, respectively; 3.8% for Laos, 3.6% for Thailand, and 3% for Myanmar.

It warned that commodity and export-dependent economies like Vietnam, Cambodia, and Malaysia were “particularly vulnerable to slowing export demand, including from China.”

For the whole world, the bank is expecting global growth to be around 1.7% this year.

“This is half of almost what we expected six months ago. So, the global economy is on a razor's edge. Even a small shock can trigger an outright recession,” Ayhan Kose, director of the World Bank’s Prospects Group, said in his January 10 YouTube talk issued by the bank.

“In the U.S., we are expecting growth to be around 0.5%. This is a very weak number for the U.S. economy. In the Euro area, growth will be flat, zero, and of course, that's not a good outcome either,” he said.

In its latest forex alert entitled “ASEAN FX – Revising forecasts” released January 13, Standard Chartered Bank said that the recent rally in China’s renminbi is likely to lead to further Vietnamese dong gains given the strong correlation.

As such, Standard Chartered has slightly adjusted its short-term USD/VND forecasts lower, at VND23,200 by the end of Q1/2023 (from VND24,000 previously) and at VND23,500 for mid-2023 (from VND23,800 previously).

An improving current account backdrop and tourism recovery are likely to be supportive of the Vietnamese dong. Standard Chartered expects forex volatility to remain elevated, and a wider trading band would allow more forex flexibility.

One week before the forex alert, Standard Chartered put its Vietnam GDP growth prediction at 7.2% for 2023 and 6.7% for 2024, following 8.02% in 2022.

“We still have conviction on Vietnam’s high growth potential over the medium term,” Tim Leelahaphan, economist for Thailand and Vietnam at the bank, said in the report “Vietnam - Still enjoying high-growth status” released January 6.

He added, “While macro indicators moderated somewhat in the fourth quarter of 2022, they remain largely robust. Retail sales posted solid growth in the second half of 2022, implying improved domestic activity.”

Standard Chartered’s 2023 Vietnam forecast is higher than those of HSBC and Singapore’s United Overseas Bank, which are 5.8% and 6.62%, respectively.

In December, the Asian Development Bank adjusted down its forecast for Vietnam in 2023 from 6.7% to 6.3% due to such external factors as high inflation in the U.S. and other advanced economies.

Slow growth in China will impact Vietnam’s economic prospects in 2023, and the worsening situation in Russia and Ukraine could renew surges in commodity prices, further stoking global inflation and inducing further monetary tightening, according to ADB.

For Vietnam’s part, the National Assembly, the country's legislative body, has set the 2023 growth target at 6.5%.

With last year’s 8.02% GDP growth, the highest in 12 years, Vietnam was one of Asia’s fastest-growing economies. However, the high growth rate in 2022 is partly derived from the low growth base in the two pandemic years 2020-2021, at 2.91% and 2.58% respectively.