Vietnam's Growth Exceeds Expectations, Yet Long-term Challenges Remain

In the third quarter of 2024, Vietnam's economy showed positive results, with growth surpassing expectations, particularly in exports and foreign direct investment (FDI). However, the country still faces long-term challenges, including inflation and a slow recovery in domestic consumption, requiring sustainable solutions to maintain growth momentum.

Positive results

By the end of the third quarter of 2024, Vietnam's economy showed progress, with GDP growth at 6.82%, over 1.5 times higher than last year's 4.4%. Despite global economic uncertainty, Vietnam has taken advantage of opportunities in exports, industrial production and services to support its recovery.

Nguyen Quoc Viet, Deputy Director of the Institute for Economic and Policy Research (VEPR), said that GDP growth was mainly due to the industrial and service sectors. Exports and imports also rose, with a total trade turnover of US$578.5 billion, up 16.3% from last year, and a trade surplus of US$20.8 billion.

State budget revenue exceeded the planned target, while public spending decreased compared to 2023. This led to a high surplus, allowing for continued fiscal measures in 2024, such as tax exemptions and reductions, especially for sectors affected by Typhoon Yagi.

Trade also showed positive growth, with record FDI disbursements, a strong recovery in tourism, and a declining USD exchange rate at domestic banks, remaining below the ceiling set by the State Bank of Vietnam (SBV). The increase in money supply and credit growth recovered well, contributing to promoting growth and investment, although still lower than the pre-pandemic average.

The SBV continued to implement flexible monetary policies to ease shocks and manage liquidity, helping to lower interest rates and support capital costs without adjusting policy rates directly.

In the first nine months of 2024, over 183,000 new enterprises were registered or re-entered the market, surpassing annual figures from 2018-2021.

Amid global economic recovery, major institutions like the IMF, OECD, World Bank, UN and Euromonitor have revised their growth forecasts for the latter half of 2024, reflecting greater optimism about the global economy.

Long-term challenges

Despite Vietnam's positive economic results in the first nine months of 2024, Viet warned of ongoing risks and challenges in the near future. The Purchasing Managers' Index (PMI) declined to below 50 points in September, indicating a contraction in production activities. Furthermore, the ratio of businesses exiting the market remains high compared to new market entries, signaling an unsustainable trend.

Domestic consumption and public investment disbursement have fallen short of expectations, adding pressure on growth. Consumer spending is still below pre-pandemic levels, and inflation in the first half of 2024 has slowed capital growth.

Viet also pointed to the global trend of economic and political fragmentation, along with extreme weather phenomena due to climate change, which could lead to a decline in external demand, negatively affecting exports. Increasing production costs are also weakening Vietnam's competitiveness in the global value chain.

In addition, Viet said that input factors in production still face many barriers, along with challenges in transforming the growth model and implementing reforms. While some progress has been made, the slow pace poses risks to investment and business activities, leading to declining confidence among domestic and international businesses.

Economist Pham Chi Lan highlighted the importance of achieving the development goals for 2024, especially the third-quarter accomplishments, which play an important role in fostering confidence for sustainable recovery and growth in the coming years. However, she expressed concerns that the growth in the third quarter was mainly driven by exports and FDI, while domestic consumption and investment have not increased as expected. She noted that the lingering effects of the COVID-19 pandemic continue to impact consumption and investment activities, contributing to the difficulties faced by the domestic economy.

Based on these factors, VEPR proposed two growth scenarios for the fourth quarter and the entire year of 2024. In the high-growth scenario, GDP growth in the fourth quarter could stabilize at 7.4%, achieving the government's full-year target of 7.0%. However, in the lower-growth scenario, fourth-quarter growth could fall below 7%, leading to a full-year growth rate of about 6.84%.

By Huong Ly, Vietnam Business Forum