Tourism recovery to add 1-plus ppts to Vietnam’s 2024 GDP growth: VinaCapital

After having boosted Vietnam’s GDP growth by more than four percentage points last year, a continued recovery of foreign tourists visiting Vietnam is expected to add more than one ppt to the country’s growth this year, said VinaCapital, a leading Vietnam-focused asset management firm.

In a note sent to The Investor, the firm anticipates the number of foreign arrivals to Vietnam to increase 40% this year, driven by the continued recovery of outbound Chinese tourism.

Data from the government-run General Statistics Office showed that about 357,190 travelers from mainland China visited Vietnam last month, up 243% year-on-year. This marked the first time since Covid that China has reclaimed its position as the top market for Vietnam’s travel industry on a monthly basis.

In the first five months of this year, Vietnam welcomed 7.6 million foreign guests, a surge of 64.9% year-on-year. The figure is now slightly above pre-Covid levels, despite the fact that Chinese tourist arrivals in Vietnam - and in the rest of Asia - remain well below 2019 levels.

Chinese tourists previously accounted for one-third of Vietnam’s total foreign tourist arrivals.

The ongoing recovery of Chinese tourist arrivals, coupled with the current, extraordinary desire of Americans to travel, means that the total number of foreign tourists visiting Vietnam will likely exceed pre-Covid levels by more than 5% this year, VinaCapital forecast.

Around 12.6 million foreign tourists arrived in Vietnam in 2023, far beating the year’s target of 8 million, but still much lower than 18 million recorded in 2019, according to government data.

The recovery in foreign tourist arrivals after Vietnam re-opened its borders was initially driven by South Korean and American tourists, until China lifted its “Zero Covid” restrictions in 2023.

Vietnam also eased its tourist visa requirements last year, which has helped boost revenues at travel-related companies this year. Local tour operators’ revenues are up nearly 50% in January-May 2024 and the stock prices of Vietnam Airlines (HVN) and Airports Corporation of Vietnam (ACV), the country’s leading airport operator, are up by nearly 200% and by more than 100% year to date, respectively.

Recovery in Chinese and U.S. tourist arrivals

The proportion of Chinese consumers who intend to travel abroad nearly doubled versus last year - to nearly two-thirds of those surveyed, and the proportion of U.S. consumers planning to travel abroad in the next six months nearly doubled versus pre-Covid levels - reaching record-high levels.

The Chinese Tourism Academy expects outbound Chinese tourism to exceed 80% of pre-Covid levels this year, and the number of Chinese tourists visiting Vietnam soared by more than 300% year-on-year in January-May to 75% of pre-Covid levels.

Consequently, VinaCapital expects Vietnam’s Chinese tourist arrivals to recover from 30% of pre-Covid levels last year, to 85% this year. That partial recovery is the basis for its forecast that Vietnam’s total tourist arrivals will recover from 70% of pre-Covid levels last year to 19 million arrivals, or more than 105% of pre-Covid levels this year.

Citing a recent Wall Street Journal article saying that an unprecedented amount of cash is being put in the pockets of millions of Americans from their surging investment income - and savers are spending some of that newfound income on luxuries like travelling abroad, VinaCapital assessed that the U.S. spending spree is supporting tourism in Vietnam.

In Vietnam, U.S. tourist arrivals are well above pre-Covid levels and spending by those relatively affluent travelers helps explain the high occupancy rates of upscale hotels.

Directly and indirectly boosting Vietnam’s economy

Foreign tourism accounted for about 8% of Vietnam’s GDP, pre-Covid. Last year, Vietnam’s continued tourism recovery boosted GDP growth by more than 4 ppts. Domestic tourism accounts for an additional 4% of Vietnam’s GDP, but domestic tourism had already fully recovered last year, so increased spending by domestic tourists will not make a major contribution to the country’s GDP growth this year. Taken together, foreign and domestic tourism accounted for about 12%/GDP, pre-Covid.

The number of foreign tourists visiting Vietnam jumped by more than 200% last year to nearly 13 million, or from 20% of pre-Covid levels in 2022 to 70% in 2023. That surge directly boosted GDP growth.

VinaCapital estimated that purchases by foreign tourists account for about 10% of retail sales in Vietnam and observed that foreign tourism puts money into the hands of a wide range of local merchants, further boosting the economy, albeit indirectly.

“We estimate that the total contribution of tourism to Vietnam’s economy - including both the direct and indirect contributions - is over 15% of GDP,” the firm noted.