External factors weigh on Vietnam's economic outlook: ADB

Workers process frozen squid for export in a factory in Hải Phòng City. The current account balance is forecast to make a surplus of 3.0 GDP for 2023. — VNA/VNS Photo Vũ Sinh

HÀ NỘI — Việt Nam's economic recovery is expected to pick up in the near term, driven by strong domestic consumption, moderate inflation, acceleration of public investment, and improved trade activities.

That remark was made by Shantanu Chakraborty, ADB Country Director for Việt Nam, at the "Asian Development Outlook September 2023" press conference yesterday.

However, the global economic slowdown and the weak recovery in China would continue to weigh on the outlook. Sustained high interest rates in Europe and a stronger US dollar might lead to further challenges to the recovery of external demand and weaknesses in the đồng exchange rate.

"Việt Nam's GDP growth projection in 2023 has therefore been adjusted downward by ADB to 5.8 per cent, reflecting lower global demand compared with our earlier projection of 6.5 per cent," said Shantanu.

The director also said the growth forecast for 2024 had been downgraded to 6.0 per cent from an earlier projection of 6.8 per cent to capture the tightening monetary policy in some advanced countries and the continuing geopolitical uncertainty.

Nguyễn Bá Hùng, ABD Principal Country Economist, said the inflation projection for Việt Nam had been marked down to 3.8 per cent for 2023 from 4.5 per cent in April's forecasts, and 4.0 per cent for 2024 from 4.2 per cent.

The manufacturing purchasing managers' index edged above 50 in August, indicating a recovery of consumption-led manufacturing. Services are expected to keep expanding, supported by the reinvigoration of tourism. Agriculture would benefit greatly from rising food prices and is forecast to expand by 3.2 per cent in 2023.

Public investment, meanwhile, would be the key driver for economic recovery and growth as accelerating government spending could give a big push to demand for the rest of the year.

Weak global demand would dampen trade prospects for the rest of 2023 and 2024. However, import and export growth rates are projected to return to a modest 5.0 per cent this year and next year with the revival of external demand.

Robust trade activities are forecast to create a current account surplus of 3.0 GDP for 2023. Nevertheless, as the recovery of manufacturing would push up imports of input materials, the current account balance is projected to fall to 2.0 per cent of GDP in 2024.

Bank credits are expected to grow slowly owing to rising gross non-performing loans and increased provisioning requirements.

"But several factors will continue to pose risks to the outlook, including strong external headwinds, pandemic-exposed structural issues, and climate change," said Hùng.