Challenges permeate various sectors and facets, particularly evident in the context of sluggish growth. Many organizations estimate that the economic growth in 2023 will hover around 5%, but this figure may not accurately reflect the true essence of the economy. A closer examination of specific sectors, industries, and businesses in Vietnam reveals a general trend of decline or subdued growth compared to 2022. The current production capacity of domestic enterprises appears to surpass existing demand. While there are signs of export improvement since late Q3, driven by increased orders from Western European and American regions during the year-end shopping season, these gains reversed in December.
The origin of the issue lies in the global efforts to combat inflation by major central banks worldwide. Despite some initially positive outcomes, the inflation rate remains higher than the targets set. As a result, these central banks are likely to maintain high-interest rates for a longer period, and any reduction will be gradual. The tightening monetary policies have permeated into the economies of developed countries, leading to a decline in people's purchasing power, which cannot quickly rebound even with a decrease in interest rates. Importantly, these developed countries represent significant export markets for Vietnam. Therefore, one should not expect a substantial breakthrough in Vietnam's exports in 2024 but rather an improvement compared to 2023. The likelihood of achieving double-digit growth, as in previous years, is very low.
Given the current state of the economy, businesses are relatively pessimistic, consolidating their operations and refraining from expanding production, especially in the real estate and construction sectors. Legal issues pose the most significant obstacle, resulting in very few new real estate projects receiving approval or commencing construction. Additionally, challenges arise from persistently high interest rates for loans, while the market demand is not adequately secured. The issuance of stocks and bonds has also become more difficult than before, with only high-quality businesses managing to raise capital through this channel.
In general, all sources of investment funding for the private sector are currently facing difficulties, and these challenges are expected to persist into the next year due to the complexity of the issues involved. Not only is investment affected, but consumer spending in the private sector is also on the decline. This stems from the cautious mindset of consumers amid declining incomes and economic instability. Household assets have suffered losses over the past year due to involvement in bond-related issues, entanglement in real estate, and declining stock prices. As a result, resources available for consumption have diminished.
Despite the challenges mentioned above, there is an expectation that public investment will serve as a primary driver for growth. The government is currently actively disbursing public investment, but it cannot fully replace all other growth drivers, which must come from the private sector. The state also lacks sufficient resources to sustain public investment indefinitely to stimulate the economy. The greatest and most positive expectation lies in the global economic recovery and the monetary policies of major countries, which may reverse course more quickly than anticipated. Vietnam's economy is highly open, with its trade volume being twice the GDP, and both direct and indirect foreign investment playing a significant role. Therefore, a global economic recovery is expected to act as a positive catalyst for the domestic economy.
Overall, Vietnam's economy has navigated through its most challenging phase to date, but the growth rate remains significantly lower than usual, and there is a risk of prolonged difficulties. The industrial sector, especially processing and manufacturing for export and industries related to the real estate market, has been most heavily affected. Domestically, all components of aggregate demand are weakening, inflation has decreased rapidly, and it tends to be maintained at a moderate level despite existing pressures for price increases, which are showing signs of reversal. Major trading partners continue to maintain high-interest rates, at least for the remainder of the year.
With the current situation, to achieve the targeted growth of 6-6.5% in 2024 set by the National Assembly, Vietnam can employ selectively chosen measures to support aggregate demand. However, these supportive policies should be combined with strategies to enhance the overall supply potential. These support policies should adhere to three principles: (i) being swift and timely to reduce policy delays, (ii) temporary implementation due to limited resources, avoiding side effects, and stimulating responses from businesses and consumers, and (iii) targeting the right audience, focusing on those with high demand/expenditure and domestic goods.
