The IMF has kept its 2023 GDP growth forecast for Vietnam unchanged from its April projection at 4.7%, below the government’s 6.5% target, though the country's liquidity, foreign exchange and inflationary pressures have eased.
After a weak first half, growth in 2023 is expected to accelerate in the second half, assuming that the real estate turbulence is contained, and exports and credit growth pick up gradually in the second semester and in 2024, the IMF said in their conclusions on the 2023 Article IV Consultation with Vietnam.
The IMF’s forecast is on par with the World Bank’s and lower than several other international institutions like ADB, Standard Chartered and UOB.
Given the opening up of the output gap, inflation is expected to end the year at 3.7%, below the 4.5% target. The current account balance will improve to a small surplus in 2023, driven partly by a rebound in tourism, says the IMF report.
Merchandise export and import volumes are expected to decline relative to 2022 due to depressed demand. The exit from the pandemic has been challenging and has left some scarring, but the economy is expected to revert to the pre-Covid growth trajectory over the medium term as reforms are implemented.
The IMF forecast Vietnam’s economic growth at 5.8% next year, and the consumer price index – a gauge for inflation – at 3.5%.
The fund noted downside risks to growth loom large. The main external risk is a deeper and more persistent weakness in external demand. While recently benefitting from some business diversion from China, Vietnam stands to lose from a slowdown in global trade due to geoeconomic fragmentation.
Domestic downside risks mostly emanate from a further deterioration of financial conditions, which could damage growth prospects over the medium term. Further energy shortages after the episodes in May-June 2023 could harm economic activity and business sentiment.
On the upside, a faster than anticipated deployment of public investment may boost growth.
IMF executive directors noted that, given ample fiscal space and limited room for monetary policy loosening, fiscal policy should take the lead in supporting economic activity if needed. They recommended strengthening the fiscal framework and budget process and increasing revenue mobilization over the medium term to support the ambitious development agenda.
Regarding the bond and real estate markets, they urged decisive steps to address remaining risks, including strengthening the insolvency framework, bolstering institutions, and increasing transparency in the corporate bond market.