Vietnam Economy Development: Accelerating Economic Growth

Although the economy is facing many challenges, under the leadership of the Party and drastic actions of the Government, Vietnam has many high growth prospects in the coming time. Let’s find out the driving force behind economic growth in Vietnam economy development below.

Challenges ahead in Vietnam economy development

Vietnam economy development began to show signs of slowing down from the beginning of 2023. Gross domestic product (GDP) in the first quarter of 2023 only increased by 3.32% over the same period, a rather low level. Meanwhile, GDP growth in 2022 will reach more than 8% due to the rapid recovery of the economy after the pandemic. The export sector is also greatly affected when Vietnam’s two main markets, the US and the European Union (EU), which account for more than 40% of Vietnam’s export turnover, are reduced. According to the Ministry of Planning and Investment, in the first five months of 2023, export turnover of goods was estimated at 136.17 billion USD, down 11.6% over the same period last year. In which, the domestic economic sector reached 35.19 billion USD, down 13.2%; FDI sector (including crude oil)

reached 100.98 billion USD, down 11.1%. The US is Vietnam’s largest export market with an estimated turnover of 37.2 billion USD. Trade surplus to the US was estimated at 31.2 billion USD, down 22% over the same period last year; trade surplus to the EU was 12.6 billion USD, down 3.6%. The drop in exports also affects imports. Generally, in the first five months of 2023, the import turnover of goods was estimated at 126.37 billion USD, down 17.9% over the same period last year, of which the domestic economic sector reached 43.95 billion USD, down 18.5%; the foreign-invested sector reached US$82.42 billion, down 17.5%. China is Vietnam’s largest import market with an estimated turnover of 43.4 billion USD. The trade deficit from China was 23.6 billion USD, down 16.7%; the trade deficit from Korea was 10.8 billion USD, down 38.3%; the trade deficit from ASEAN was 3.4 billion USD, down 41.3%.

The drop in exports was also reflected in the industrial sector. According to the General Statistics Office, in the first five months of 2023, the index of industrial production (IIP) is estimated to decrease by 2% compared to the same period last year (while in the same period in 2022, it increased by 8.1%). The crisis in the real estate sector also affected related industries. According to the Vietnam Steel Association, in the first four months of 2023, finished steel production reached 8,866 million tons, down 22.4% over the same period in 2022; finished steel consumption reached 8.1 million tons, down 23.1%; steel exports reached 2.301 million tons, down 6.2% over the same period last year. The production output of building materials was also affected. According to the website of Vietnam Cement, in the past five months, the consumption of cement and clinker continues to be affected by many internal and external factors. In the domestic market – which absorbs more than 60 million tons of cement and clinker each year, consumption volume is estimated to decrease by 6% compared to the same period in 2022.

The Purchasing Managers’ Index (PMI) of Vietnam’s manufacturing sector fell to 45.3 in May from 46.7 in April, the third consecutive month of decline. The impact of this was most evident in the fastest and strongest drop in new orders over the past 20 months. Output fell in all three major production categories, with the biggest declines in intermediate producers.

In addition, power shortages began to appear in May due to prolonged heat waves that increased electricity consumption and reduced hydroelectricity supplies. Manufacturing enterprises in industrial zones in the northern region of Vietnam are also greatly affected.

However, an optimistic signal is that demand declines, causing suppliers to lower prices, leading to lower input costs, boosting demand. The consumer price index (CPI) in May 2023 increased by 0.01% over the previous month. On average, in the first five months of 2023, CPI increased by 3.55%, and core inflation increased by 4.83% over the same period last year. Vietnam’s economy slows down, leaving room for the State Bank of Vietnam to ease monetary policy through interest rate cuts in 2023.

Medium-term growth drivers

Despite the current difficulties, Vietnam economy development has many prospects for rapid growth in the medium term. Vietnam is expected to continue to be a beneficiary of the shift of the global supply chain towards the formation of production centers in Southeast Asia. Over the next five years, several key drivers are expected to continue to propel Vietnam into one of the fastest-growing emerging markets in the region.

Firstly, with the drastic and synchronous leadership and direction from the central to local levels, the anti-corruption and anti-corruption work has achieved many concrete results, having a strong pervasive effect in the whole society. and really “has become a movement, an irreversible trend”. Through anti-corruption and anti-corruption work, many properties and land have been recovered for the State, which is a great resource to support socio-economic development. In the period from 2012 to 2022, through the inspection and audit, petitioned to recover and handle more than 975,000 billion VND, nearly

76,000 hectares of land; transferred the investigation agency to nearly 1,200 cases with signs of crime for investigation and handling in accordance with the law. The fight against corruption and negativity is not only aimed at cleaning up the team, protecting the Party and the socialist rule of law state, but also contributing to socio-economic promotion in many aspects.

Second, public investment is expected to increase rapidly in the near future. The most expected growth driver is public investment. The scale of allocation of medium-term public investment capital in the 2021 – 2025 period, agreed by the Standing Government of the Government, increased by more than 37% compared to the period of 2016 – 2020. Which, the total public investment capital in the 2021 – 2025 period is 2. 75 million billion VND, of which the central budget is 1.38 million billion VND, and the local budget is 1.37 million billion VND. At the same time, the Government has approved the National Electricity Development Plan for the period of 2021 – 2030, with a vision to 2050 (Power Plan VIII). Accordingly, in the period of 2021-2030, it is estimated that the total investment in the development of power sources and transmission grids is equivalent to 134.7 billion USD. This is one of the important economic policies to develop the power infrastructure system to meet the increasing demand of the economy.

Third, foreign direct investment (FDI) was and still will be one of the important resources. Assessing this issue, Minister of Planning and Investment Nguyen Chi Dung said that the FDI sector has promoted restructuring and formed a number of new industries and products. Vietnam has a stable political and economic background, attractive investment incentives, and an abundant and well-trained labor force compared to other countries in the region. relatively low production… makes Vietnam an attractive destination for multinational companies. Many companies have strategies to diversify their manufacturing supply chains to reduce their vulnerability to supply disruptions and geopolitical events. The Covid-19 pandemic that has been going on for nearly 3 years will forever be the classic lesson of global supply chain disruption. Vietnam economy development is a favorite destination for Japanese and Korean companies when moving production bases to the ASEAN region.

The fourth island resource is considered an important internal force for socio-economic development. With the reasonable division of administrative boundaries, each region, region, and province has absolute and relative advantages to be able to bring into play the great internal resources from the land, contributing to economic development. -society.

Fifth, extensive participation in free trade agreements (FTAs) is a condition for Vietnam to take advantage of its advantages. According to the Ministry of Industry and Trade, new-generation FTAs facilitate the development of production and business activities and increase Vietnam’s competitiveness.

Sixth, the development as a low-cost manufacturing center will expand existing key industries, especially textiles and electronics, as well as the development of new industries such as automobiles. and petrochemicals. For the first time, Vietnam has a domestic electric car technology manufacturer, Vinfast. In March 2022, Vinfast announced a $2 billion investment to build a factory in North Carolina, to manufacture buses and electric vehicles, as well as to produce EV batteries. Vinfast is also implementing a plan to list on the US stock market through the merger with Black Spade Acquisition Co (BSAQ) to open up opportunities to access international capital markets.

You can read the previous article here: Vietnam Legal System Business: Regulated Subjects

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