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COVER STORY

BETTER DAYS BECKON

After a challenging 2023, all indications are that 2024 will be a stronger year
for Vietnam’s economy, driven by a rebound in the manufacturing sector and
improvements in consumer sentiment.

| MR. MICHAEL KOKALARI, Chief Economist at VinaCapital

GDP GROWTH TO ACCELERATE manufacturing activity, we do not expect a repeatedly shown their resolve to defend
We expect Vietnam’s GDP growth to large increase in the growth of consumption. the value of the VND in recent years).
reach 6.5 per cent in 2024 due to several That is because a surge in foreign tourist That said, the Vietnamese Government
factors. First, manufacturing output growth arrivals last year boosted consumption last would have ample ability to respond to
is likely to recover from less than 4 per year, which will not be repeated this year. such a crisis with massive fiscal stimulus,
cent in 2023 to 8-9 per cent in 2024, which The number of tourists visiting Vietnam including a surge in infrastructure spend-
is still below pre-Covid growth levels from countries other than China (which ing. In early 2023, the government guided
because of the weakening US and global previously accounted for about one-third its intention to increase infrastructure
economies and the fact that most products of total tourist arrivals) has almost fully spending by about 50 per cent to about
manufactured in Vietnam are exported, recovered to pre-Covid levels. There is a $30 billion, or 7 per cent of GDP last
especially to the US. Second, interest rates possibility that Chinese tourist arrivals year, up from 4 per cent of GDP in 2022.
in Vietnam will likely remain lower and (which reached only 30 per cent of pre- It is very likely that part of the reason the
less volatile than over the last two years, Covid levels last year) will continue to government intended to ramp up infra-
which will support the economy in a num- recover in 2024, but consumer sentiment structure was to offset the predictable hit
ber of ways, including encouraging con- in China currently languishes at similar to the economy from slowing global
sumption and credit growth. Third, con- levels as during the country’s Covid lock- demand for “Made in Vietnam” products.
sumption is likely to see a modest accel- downs as it deals with a wide range of Early indications are that infrastructure
eration, supported by the first and second structural economic issues. spending increased to around $25 billion
points above, though real retail sales The main risk to our moderately posi- (or 6 per cent of 2023 GDP), and that the
growth is only likely to accelerate slightly tive outlook is the possibility of a “hard government plans a similar level of spend-
in 2024 and most likely later in the year. landing” in the US economy, causing ing this year. Critically, the government’s
Further to that last point, Vietnam’s demand for “Made in Vietnam” products past prudence permits it to significantly
GDP growth fell from 8 per cent during to plunge. The value of the US dollar would ramp up spending if it wanted to. The
its post-Covid reopening boom in 2022 likely soar in such a scenario (as it typically State Treasury of Vietnam reportedly has
to 5.1 per cent last year, a fall that was does) driven by “safe haven” buying, which over $30 billion of undisbursed funds
equally attributable to plunges in industrial would limit the ability of Vietnamese poli- deposited in the country’s banks, most of
production / manufacturing and in the cymakers to respond to a slowing Viet- which was earmarked for infrastructure
services sector / domestic consumption. namese economy by slashing VND interest projects in past years but did not get
While we expect a healthy rebound in rates (Vietnamese policy makers have spent, and the government debt-to-GDP

en.vneconomy.vn FEBRUARY 2024 | VIETNAM ECONOMIC TIMES | 15