Vietnam acknowledges that this year's 6.5% growth target cannot be achieved. Vietnam | Policy | Goal

With the release of a series of data in the first half of the year, Vietnamese officials have now generously admitted that the GDP target set this year should not be achieved.

Vietnam's GDP growth rate in the first half of 2023 was 3.72%, far below the previously set target of at least 6.2% in the first half of the year. In response to this, Nguyen Thi Hsiang, Director of the Investment Department of the Ministry of Planning and Investment of Vietnam, recently told the media that under the current situation, it will be difficult to achieve the target of 6.5% annual economic growth.

In order to stimulate the economy, the Vietnamese government has introduced many stimulus measures. On July 4th, Vietnamese Prime Minister Pham Myung sung called for the central bank's monetary policy to be "more flexible and loose". Since the beginning of this year, the central bank of Vietnam has lowered its benchmark interest rate four times in a row.

At the exhibition site of the China ASEAN Expo in September last year, a staff member was promoting Vietnamese coffee through the internet.

Zhou Shixin, Deputy Researcher at the Asia Pacific Research Center of the Shanghai Institute of International Studies, told First Financial reporters that Vietnam's economy is export-oriented, with weak European and American markets and external environmental issues putting pressure on the Vietnamese economy. Despite Vietnam's significant efforts, it has not been able to effectively reverse the current passive situation. In addition, many Southeast Asian countries are also facing similar difficulties.

Export orders plummet, coupled with electricity shortages

According to data recently released by the Vietnamese Bureau of Statistics, the GDP in the second quarter increased by 4.14% year-on-year, which is higher than expected. But the growth rate of 3.72% from January to June is already the second to last growth rate in the first half of the past decade, only higher than the 1.74% growth rate in the first half of 2020 in the early stages of the epidemic outbreak.

The Vietnamese official explained that although Vietnam's economic growth in the first half of 2023 did not meet expectations, this is still a reasonable growth rate in the current context of global economic weakness.

Ruan Shixiang stated that the industrial production power, exports, and tourism have not fully recovered, and due to external difficulties and challenges, export orders have decreased, dragging down economic growth.

According to the latest statistics from the General Administration of Customs of Vietnam, the export value of Vietnamese goods in the first six months of 2023 was approximately 164.45 billion US dollars, a year-on-year decrease of 12.1%. For many years, Vietnam's economy has been driven by exports, but since the beginning of 2023, due to rising global inflation and declining external market demand, Vietnam has faced numerous difficulties in exports.

With Vietnam's recent economic growth, domestic demand has significantly increased, but it cannot make up for the rapid decline in external demand. Vietnam's advantageous manufacturing and processing industries, such as textiles, clothing, footwear, electronics, etc., account for over 90% of their production capacity for exports, while domestic demand only accounts for 10%.

The decrease in orders forced the factory to lay off employees. According to data from the Vietnam General Bureau of Statistics, over 200000 workers in Vietnam were unemployed in the second quarter. The areas with the most severe unemployment are Ho Chi Minh City and Pyeongyang Province in southern Vietnam. The unemployment rate in Ho Chi Minh City has reached 3.7%. Unemployed individuals are mainly concentrated in the textile, wood products, and electronics industries, with many attempting to transfer to the service industry for re employment.

And it's not easy for workers without unemployment. Samsung, a South Korean company, is the largest foreign-funded enterprise in Vietnam. Previously, local job seekers flocked to it due to providing salaries higher than the industry average. In the current situation where orders are not saturated, Samsung has reduced working hours for employees who are still on duty, and some positions are called to work one day a week, resulting in a significant decline in worker income.

According to former employees, the dormitory for workers assembling smartphones and Apple earphones currently only has about half of the occupancy rate, which is the first time in their over a decade of work experience.

Zhou Shixin told First Financial reporters that the development of Vietnam's economy heavily relies on external raw materials and external markets, with poor stability. Vietnam is now also focusing on introducing high-tech and high value-added industries. Although it is still in its early stages, the policy support is significant and will contribute to the sustainable development of Vietnam's industry in the long run.

In addition to external factors, northern Vietnam also experienced a power shortage starting from June, with industrial parks arranged for power outages and factory production forced to be interrupted, exacerbating the crisis in Vietnam's manufacturing and exports. "The Vietnamese Ministry of Industry and Trade should take urgent measures to avoid damage to Vietnam's reputation as a reliable global manufacturing center," said Buvlet, Vice President of the European Chamber of Commerce in Vietnam

Zhou Shixin told reporters that overall, the current electricity crisis in Vietnam is related to the rapid development of the Vietnamese economy in recent years, but the lack of timely protection of electricity infrastructure. At the same time, frequent extreme weather events have further exacerbated the crisis.

On the evening of July 4th, Du Shenghai, Deputy Minister of Industry and Trade of Vietnam, told the media that some thermal power plant units in Vietnam have received timely maintenance. Although the operation of the power system in July is still difficult, from now until the end of 2023, there will be basically no shortage of electricity for production and daily use in the country.

The Vietnamese government has not yet released new growth expectations for this year. In the latest report released by the International Monetary Fund at the end of June, the forecast for Vietnam's economic growth was 5.8%.

However, other market institutions are more cautious. In the second quarter 2023 Vietnam Economic Growth Report released by the Global Market and Economic Research Department of Dahua Bank in early July, the GDP growth forecast for Vietnam in 2023 was lowered from 6% to 5.2%.

Vietnam's "radical" stimulus measures

On June 27th, at the 14th Annual Meeting of New Leaders of the World Economic Forum held in Tianjin, Fan Mingzheng responded to concerns about Vietnam's weak foreign trade by saying, "This is a global problem that requires global solutions." He called on governments around the world to take responsibility, such as restoring employment as soon as possible and accelerating the opening up of capital flows. International institutions also need to participate and launch preferential policy solutions.

Fan Mingzheng is not just talking. On July 4th, he stated at a government work conference that "the Central Bank of Vietnam has adjusted its monetary policy, but more efforts are needed", calling for Vietnam's monetary policy to be "more flexible and loose".

In fact, in order to stimulate economic growth, Vietnam has lowered interest rates four times so far this year, which is in sharp contrast to the multiple interest rate hikes by major economies around the world. The latest interest rate hike in Vietnam was on June 19th, when the central bank lowered the main refinancing rate from 5% to 4.5% and the discount rate from 3.5% to 3%. Vietnam hopes to create convenient conditions for businesses and the public to obtain loans through this.

According to Dahua Bank's forecast, Vietnam's interest rates will be further lowered by 100 basis points in the third quarter, which means the refinancing rate will be lowered to 3.5%. Nevertheless, Dahua Bank still believes that there is still a risk of economic downturn in Vietnam, especially if there is no significant improvement in exports and manufacturing in the coming months, a growth rate of 5.2% this year may be difficult.

Vietnamese Minister of Finance Hu Defu also stated in June that Vietnam needs to take proactive measures to achieve this year's economic goals, including extending the deadline for tax payments, reducing value-added tax and gasoline tax, and other "radical measures".

The Vietnamese Ministry of Finance has decided to reduce the value-added tax rate from 10% to 8% from July 1st until the end of this year. I hope to promote the recovery and development of production and commercial activities as soon as possible, and contribute to the national fiscal budget and economic growth.

The World Trade Organization predicts that global trade in goods will grow by 1.7% this year, significantly lower than the average level of 2.6% in the past 12 years. The inflation levels in major developed economies are still relatively high, and continuous interest rate hikes have suppressed investment and consumer demand, leading to a year-on-year decline in imports for several consecutive months. Affected by this, the exports of South Korea, India, Vietnam and Taiwan, China have all declined significantly in recent months, and the exports to markets such as the United States and Europe have been sluggish.

Faced with a relatively harsh external environment, Vietnam's stimulus policies can only be "minor repairs" on the overall economic level. The Vietnamese economic community believes that the current difficulties may continue until the end of 2023, or even until 2024.

Vietnamese economic commentators say that during this special period, Vietnamese companies need to minimize their operating capital, suspend expansion plans, only consider deep investment, and closely monitor market trends in order to engage in flexible production, effectively respond to emerging problems, and reduce unnecessary costs.

Affected by the global economic downturn, Vietnam's economy is inevitably affected in the short term, but its long-term growth fundamentals have not changed. It is widely believed that if a mid-term outlook is made on the development prospects of Vietnam's economy over the next five years, its growth momentum remains strong, and many key driving factors will continue to drive Vietnam to become one of the fastest-growing emerging markets in the Asian region.