Tailwinds for the Vietnamese economy in 2023

According to GSO, there were 484,400 international tourist arrivals to Vietnam in October 2022, up 12.1% over the previous month and 45.9 times higher than the same period last year. 

>> Tourism firms upbeat about Vietnam's 2023 outlook

Recovery of international tourist arrivals

Since February 15, 2022, Vietnam has lifted restrictions on the frequency of international flights and restored its pre-pandemic visa policy. Until May 15, 2022, Vietnam has stopped the requirements for validating COVID-19 test results for international passengers and fully resumed international air traffic.

According to GSO, there were 484,400 international tourist arrivals to Vietnam in October 2022, up 12.1% over the previous month and 45.9 times higher than the same period last year. In 10M22, international visitors to Vietnam reached nearly 2.4 million, nearly 18 times higher than the same period last year but still down 83.7% compared to the same period in 2019 (before the COVID-19 pandemic).

In general, almost every country has removed entry requirements related to COVID-19 prevention; however, the most negative factor for Vietnam's tourism recovery is China's "zero-COVID" policy, under which travel to and from China is still strictly limit ed. Before COVID-19, the number of Chinese tourists accounted for 30% of the total number of international tourists to Vietnam in 2019.

In the worst-case scenario, VNDirect anticipates China gradually relaxing travel restrictions beginning in 2Q23F.In addition, it also expects the number of tourists to Vietnam from the US, EU, Japan, Korea, and Southeast Asia will continue to recover positively in 2023F. Therefore, Vietnam could welcome 10 million international arrivals in 2023F, an increase of about 195% compared to the expected level in 2022, reaching 55% of 2019 (before COVID-19).

A stronger recovery in international tourist arrivals in 2023F will underpin the service sector's recovery in 2023F amid a likely slowdown in domestic demand due to the impact of higher inflation and rising interest rates. The activities that benefit the most from the recovery of international tourist arrivals in 2023F include accommodation and catering services, travel services, transportation activities, and entertainment activities.

Accelerating public investment disbursement

Vietnam’s government plans to accelerate public investment to support the economy. The Government has announced a budget estimate for 2023F, in which the investment capital from the state budget (also known as public investment) is about VND 698,867bn, up by 28.9% compared to the previous year’s plan. This number includes capital allocated to projects under the Socio-Economic Development and Recovery Program. In order to achieve this ambitious plan, the Vietnamese government has relaxed the average inflation target in 2023F, increasing by 4.5% over the same period (the target in 2022 is 4.0%), and lifted the higher budget deficit in 2023F to 4.5% from 4% in 2022.

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Another factor that will support public investment in 2023 is the reduction of construction material prices in recent months. Specifically, after peaking in April 2022, domestic construction prices fell 19.7% from the peak (-10.6% yoy) and decreased by 6.7% compared to the end of 2021.

"We expect construction material prices to decline further in the coming quarters due to weak demand." The lower construction material prices could help improve profit margins for construction contractors while speeding up the progress of public investment projects. As a result, we believe that the actual implementation of public investment in 2023F can increase by 20–25% compared to the actual implementation in 2022. "Key public investment projects that will be promoted in 2023F include the North-South Expressway phases 1 and 2, and the Long Thanh International Airport," said VNDirect.

Energy transition for sustainable growth

Vietnam is set to follow Indonesia and South Africa with a climate financing package of at least US$11 billion to shift its economy away from coal and boost the rollout of renewable energy sources. Led by the European Union (EU) and the UK, this funding deal is aiming to be announced at the EU-ASEAN summit on December 14, 2022. Of which, about $5–7 billion will come from public loans and grants, with the rest from private sources.

Vietnam's package is set to be the third in a series of blockbuster deals to help large, coal-dependent middle-income countries accelerate their transition to low-carbon economies. South Africa's US$8.5 billion agreement was the first, announced at last year's COP climate summit, with an investment plan signed off at this year's meeting in Egypt. Indonesia's US$20 billion pact was unveiled at the Group of 20 (G20) gathering in Bali this week.