Vietnam's economy is booming again

The General Department of Tourism reports that the total number of domestic visitors reached 60.8 million in the first half of 2022

>> Vietnam economy: Firm rebound amid challenges

In terms of Vietnamese economy's three main pillars, the industry and construction sectors grew by 8.9 percent year over year, while the service and agricultural sectors grew by 8.6 percent and 3.0 percent, respectively. Vietnam's GDP expanded by 6.4 percent year over year in 1H22, as opposed to 5.6 percent in 1H21.

After growing by 4.0 percent yoy in 1H21, the service sector increased by 6.6 percent yoy in 1H22. The following factors drove the sector's rapid improvement:

First, it is important to note the domestic demand recovery that is sustainable. In 1H22, gross retail sales of consumer goods and services increased by 11.7 percent year over year (vs. 3.4 percent in 1H21), according to GSO data. If the price factor were removed, this indicator climbed by 7.9% year over year (that in the same period in 1H21 increased by 1.9 percent yoy). The first half of 2022 has seen growth rates that are practically on par with those of the six months before to the epidemic, indicating that domestic demand is returning very robustly. The retail sub-sector expanded 5.8 percent yoy in 1H22 (vs. 5.6 percent in 1H21) as a result of the domestic consumer's rebound.

Second, the service sector's 2Q22 high point was the tourist sector's amazing comeback. The General Department of Tourism reports that the total number of domestic visitors reached 60.8 million in the first half of 2022, an increase of 1.3 million over the pre-pandemic level in 1H19 and 1.9 times above its level in 1H21. Particularly, in just the first six months of the year, the number of domestic visitors exceeded the Government's target of 60 million for the entire year of 2022.

According to GSO data, Vietnam welcomed 601,982 more visitors in 1H22, an increase of 582.2 percent year over year but still just 7 percent of the pre-pandemic level in 1H19. In the first half of 2022, tourism generated VND265,000 billion in income overall. As a result, the tourism-related sub-segments of lodging and food services (11.2 percent yoy in 1H22 vs. -5.0 percent in 1H21) and arts, entertainment, and leisure (8.1 percent yoy in 1H22 vs. -5.2 percent yoy in 1H21) experienced significant growth rates in 2Q22.

>> Vietnam emerged as a regional outperformer

Third, transportation-related activity flourished in 1H22 in addition to the robust tourism recovery. According to GSO, the number of passengers carried in 1H22 was anticipated to be 1.9 billion (6.2% yoy), and passenger traffic was 86.2 billion (15.2% yoy). Meanwhile, it was predicted that 951.2 million tons of freight were carried in 1H22, an increase of 8.6% year over year, and that 199.9 billion tons-km of freight were moved. As a result, the transportation and storage sector notably increased by 8.1 percent yoy in the first half of 22. (vs. -0.4 percent yoy in 1H21).

7.7% yoy growth in the industrial and construction sector in 1H22 was less than the 8.4% yoy increase in 1H21. The greatest barrier to the revival of the manufacturing sub-sector in the first half of 2022 was the supply chain interruptions caused by the Russia-Ukraine conflict. In 1H22, this subsector experienced growth of 9.7% yoy, which is less than the 1H21 level of 11.4 yoy.

In addition, the construction sub-growth sector's rate decreased to 3.7 percent yoy in 1H22 from 5.6 percent yoy in 1H21 as a result of construction companies' narrowing profit margins as a result of rising construction material prices. The price increase of crude oil and other minerals during 1H22 contributed to the mining sub-greater sector's growth in the first half of 2022, which was 2.3 percent yoy (vs. -6.6 percent yoy in 1H21).

Lower than the growth rate of 3.8 percent yoy in 1H21, the agricultural, forestry, and fishery sector increased by 2.8 percent yoy in 1H22. The rapid increase in animal feed prices specifically caused farmers to delay re-herding and agricultural expansion, which resulted in both the agriculture and fishery sectors recording reduced growth rates of 2.3 percent and 4.0 percent in 1H22. In the meantime, strong export demand helped the forestry sub-sector sustain a high growth rate of 5.0 percent yoy in 1H22 (vs. 4.0 percent in 1H21).

As opposed to -0.2% in 2H21, Mr. Dinh Quang Hinh, analyst at VNDirect, anticipates that Vietnam's GDP will rise by 7.8% yoy in 2H22F, bringing the full-year growth rate for 2022 to 7.1% yoy (/-0.3% pts). The primary drivers of this recovery are the following: (1) low base in 3Q21, when Vietnam's GDP fell by 6.0 percent year over year; (2) stronger recovery of service industries like tourism, public transportation, and entertainment; (3) new economic stimulus packages (2% VAT reduction; additional interest rate compensation package worth VND40,000 billion; disbursing investment package for infrastructure development worth VND113,050 billion); and (4) the recovery of FDI inflows after the government allowing international commercial flights.