Upbeat about Vietnam’s economy

Vietnamese enterprises are optimistic about business prospects in 3Q22.

>> Headwinds for Vietnamese economy

The private economy witnessed strong recovery in 1H22. The number of newly established enterprises and enterprises resumed operation increased sharply in 1H22. Specifically, the country had 76,233 newly registered enterprises (13.6% yoy). In addition, 40,667 re-operated enterprises (55.6% yoy), bringing the total number of newly-established enterprises and re-operated enterprises in 1H22 to 116,900 enterprises (25.4% yoy).

Meanwhile, private investment capital increased steadily. The investment capital of the private sector reached VND 415.9 trillion in 2Q22, accounting for 56.3% of the total social investment capital and increasing by 10.4% compared to the same period last year (higher than the growth rate of 9.2% in 1Q22). For 1H22, the investment capital of the private sector reached VND 739.3 trillion (9.9% yoy).

Vietnamese enterprises are optimistic about business prospects in 3Q22. According to GSO, a business trend survey showed that up to 85.0% of the surveyed enterprises thought that the business prospects in 3Q22 would be better or stable compared to the previous quarter, while only 15.0% viewed the situation as more difficult than in the 2Q22. These figures are better than the rates seen in 2Q22 when only 78.4% of enterprises said that the business results in 2Q22 were better or stable compared to the previous quarter, while 21.6% of enterprises believed the 2Q22 business environment was more difficult than the previous quarter.

Mr. Dinh Quang Hinh, analyst at VNDirect forecasted that Vietnam's GDP growth would reach 11.0% yoy (/- 0.5%) in 3Q22F. This high growth is attributed to the following factors:

First, low base in 3Q21 when Vietnam's GDP dropped 6.0% yoy. Due to the impact of social-distancing measures, the service sector and industry & construction sector decreased by 8.6% yoy and 5.5% yoy respectively in the third quarter of 2021.

Second, the service sector would be the main growth driver of the economy thanks to (1) Domestic tourism continues to thrive, (2) Domestic demand recovers thanks to higher people's incomes and a 2% reduction in value-added tax (lasting until the end of 2022).

Third, the Government has stepped up economic support programs including an additional interest rate compensation package of VND 40,000 billion, disbursing an infrastructure development investment package worth VND 113,050 billion.

“We believe that disbursement of public investment will be more favorable in the last 6 months of this year because the price of some construction materials such as iron and steel has cooled down recently. This factor will help improve profit margins for construction contractors, thereby speeding up the progress of public investment projects. In addition, the implementation of the interest rate compensation package will help businesses save a part of financial costs, thereby supporting businesses to maintain and expand business activities in the coming quarters”, said Mr. Dinh Quang Hinh.

>> Vietnamese economy to perform well: AMRO

Mr. Dinh Quang Hinh said VNDirect maintained its GDP growth forecast for Vietnam in 2022 at 7.1% (/- 0.3%). Overall, Vietnam will still be one of the fastest growing countries in the AsiaPacific region in 2022.

However, VNDirect introduced its new macro forecasts for 2023 with Vietnam’s GDP growth in 2023 possibly slowing slightly to 6.9% yoy. This lower growth outlook could be attributed to: (1) slowing economic growth of Vietnam's major trading partners such as the US and Europe could dampen export prospects; (2) higher inflation could hurt the recovery of domestic consumption; (3) rising interest rates increase costs and affect business expansion plans. However, there are still supportive factors for Vietnam's growth in 2023 such as abundant disbursement of public investment, sustainable foreign direct investment inflows and stronger recovery of international tourist arrivals.

Inflation is likely to remain high in the first half of 2023 before cooling down in the second half of next year. “We forecast average inflation in 2023 at 3.7%, slightly above the average inflation forecast for 2022 at 3.5%. In particular, the increase in food & foodstuff prices will be the main factors pushing inflation to a high level in 2023”, said Mr. Dinh Quang Hinh.

In 2023, monetary policy could swift from "supporting economic recovery" to "normalizing", whereby the SBV could raise the policy rates to curb inflation and stabilize the exchange rate. Mr. Dinh Quang Hinh expects refinancing rate to reach 5.0% in 2023F (50bps compared to the end of 2022F and 100bps to the current level). Deposit rates would maintain an upward trend in 2023 (with an average increase of about 50 basis points). 12M deposit rate of commercial banks could average at 6.5-6.6% by the end of 2023. As for the exchange rate, he expects the Vietnam Dong to appreciate against the USD in 2023 due to (1) a slowing increase in USD interest rates, (2) an increase in VND interest rates, (3) strong buffers from higher trade surplus and balance account payment.