New Economic Status, More Investment Opportunities

After a year of challenges caused by the COVID-19 pandemic, Vietnam's economic growth was forecast to rebound on increased investment flows in 2022.

Vietnam's economic growth was only 2.58% in 2021, the lowest in 30 years. The growth was expected to be higher in 2022, boosted by the Socioeconomic Development and Recovery Program and many drastic reforms.

Optimistic growth

Dr. Tim Leelahaphan, Economist, Standard Chartered Bank for Thailand and Vietnam, said Vietnam's economy will recover strongly in 2022, starting from the end of the first quarter. The growth is expected at 6.7% in 2022 and 7% in 2023.

In particular, Vietnam's medium-term outlook remains positive as the country continues to be an important link in the global supply chain and an investment destination chosen by many businesses. As a result, investment flows into Vietnam are expected to rebound this year after being affected by COVID-19 mobility restrictions.

In the Outlook 2022 released by VCBS in early 2022, Vietnam’s economy is hoped to impressively grow by 6.8-7.2%, leveraged by pandemic adaptation strategy and coordinated monetary and fiscal policies.

In particular, Vietnam will continue to benefit from the trended production shift out of China to Asian countries and from the free trade agreements it signed.

Stable macro foundation

One of the reasons why domestic and foreign organizations appreciate Vietnam's growth prospects is Vietnam's success in ensuring macroeconomic stability, making it attractive to private and international capital flows in recent years.

Speaking at the Vietnam Business Forum (VBF) in February 2022, Minister of Planning and Investment Nguyen Chi Dung said, although GDP growth in 2021 was much lower than many years and only seven out of 12 main targets were achieved, the most important achievements were macroeconomic stability, secured major balances, controlled inflation, effective economic restructuring, and stable development of industries.

Specifically, state budget revenue was 16.4% higher than the estimate; total import-export value jumped 22.6% to an all-time high of US$668.5 billion. Monetary policy tools were operated actively, flexibly and consistently to ensure liquidity for the economy. The stock market developed rapidly, with the capitalization expanded by over 46%, to act as an important fundraising channel for the economy.

In 2021, the investment value totaled VND2,890 trillion (US$125 billion), which was 3.2% higher than in 2020. “Although this is the lowest growth in many years, it is still encouraging amid prolonged and complicated COVID-19 pandemic development that exerted adverse impacts on the country and the world,” he emphasized.

Especially, the business investment environment continued to get better. Foreign direct investment (FDI) rebounded to over US$31 billion, 9.2% more than in 2020, showing that foreign investors continued to believe in the way Vietnam dealt with the COVID-19 pandemic and in Vietnam’s investment environment.

Opportunities outweigh risks

Given a solid macro foundation, there is still room for fiscal policy for recovery programs, said Dr. Bui Quang Tuan, Director of the Vietnam Institute of Economics, believing that the economy will return to a growth trajectory, expected at 6-6.5% in 2022 when business and investment opportunities increase.

Specifically, consumer demand will recover with the world’s economic revival, boosted by the various groups of tasks and solutions for socioeconomic recovery and development in 2022 and 2023: Reopening the economy together with effective COVID-19 control and investment in healthcare capacity building; ensuring social security and employment support; assisting business recovery; developing infrastructure, unleashing social resources for development investment; speeding up institutional reform, administrative reform and business climate improvement, he said.

This becomes even more grounded when this year’s total retail value of consumer goods and services has recorded positive growth for the first time since the pandemic began. In addition, international tourism resumption and international flight reopening will provide new opportunities to revive aviation and tourism industries after being frozen by the pandemic.

In particular, Vietnam used public investment to leverage capable businesses and other economic sectors to join large-scale projects. In other words, public investment will be the catalyst for private investment growth.

On this basis, the Government will focus on large-scale strategic infrastructure projects, especially important public-private partnership (PPP) projects such as Eastern North-South Highway, Hanoi and Ho Chi Minh City ring roads, and large infrastructure projects like seaports, airports, urban railways and power grids.

Nevertheless, the economy is still facing certain risks. The recovery may be threatened by COVID-19 outbreaks. Inflationary pressures weigh up when the recovery package is implemented and prices of gasoline, energy and materials soar as the world economy extends recovery and Russia - Ukraine conflict escalates. Furthermore, a cautious view towards the financial sector may continue, especially when a potential crisis is likely to affect banks’ portfolio quality and produce ripple effects from expected Fed rate hikes.

However, international organizations believe that opportunities for the economy in 2022 will outweigh risks because Vietnam already has operational response scenarios. Specifically, vaccinations are being sped up and preventive health plans are well prepared even though Vietnam is a latecomer. Recovery packages will be closely monitored to keep cash flows within bounds, continue institutional reforms and solve bottlenecks in investment fund disbursement.

By Vietnam Business Forum