According to Prof. Dr. To Trung Thanh, Head of the Department of Research Management at National Economics University (NEU), with no substantive improvement in the economic model, the Government will have to rely primarily on demand-side policies to achieve its high growth target in 2024 (in the short term).

2023 was considered one of the most difficult years for Vietnam’s economy in recent years, as it faced numerous risks and uncertainties arising from international conditions, including weakening global growth, persistently high global inflation, monetary tightening in many countries, and rising geopolitical tensions.

Vietnam’s growth in 2023 remained far below pre-COVID-19 levels. Specifically, gross domestic product (GDP) in 2023 increased by 5.05% compared with 2022, exceeding only the growth rates of 2.87% and 2.56% recorded in 2020 and 2021, respectively, during the 2011-2023 period.

Most notable were the weakening of aggregate demand and its key components, such as consumption and investment, alongside a lack of improvement in the quality of growth. In 2023, all components of Vietnam’s aggregate demand showed signs of slower growth. Specifically, final consumption and capital formation increased by 3.52% and 4.09%, respectively (down sharply from growth of 7.09% and 5.40% in 2022). Neither indicator had returned to growth rates comparable to those before the pandemic. Both final consumption and gross capital formation (investment) grew more slowly than the overall growth rate (5.05%).

Consequently, GDP growth in 2023 came primarily from the balance of exports and imports of goods and services at constant prices, with a smaller deficit than in the previous year (exports fell by 2.54%, while imports declined by 4.33%).

Against this backdrop, NEU recently partnered with the Central Economic Commission and the National Assembly’s Economic Committee to organize a national scientific conference in Hanoi to assess Vietnam’s economy in 2023 and its outlook for 2024, while also launching the University’s Vietnam Annual Economic Review 2023. The theme of both the conference and this year’s annual publication was “Vietnam’s Economy in 2023 and Outlook for 2024: Boosting Aggregate Demand for Economic Growth in a New Context.”

In his opening remarks at the conference, Prof. Dr. Pham Hong Chuong, President of NEU, said that restoring aggregate demand was an important task for Vietnam in 2023. This required the Government and relevant ministries, commissions, and agencies to urgently take appropriate measures.

“Aggregate demand plays an important role in determining the level of economic activity and employment in the economy. A decline in aggregate demand indicates that the economy is at risk of recession, affecting overall economic growth and leading to consequences such as falling industrial production, rising unemployment, and declining household income and spending…,” Pham Hong Chuong said.

In the Long Term, the Economy Cannot Rely on Public Investment

Adverse and uncertain global economic conditions have led to downward revisions to all forecasts for Vietnam’s growth in 2024 compared with 2023. International organizations forecast economic growth of 5.5-6.0%, below the National Assembly’s target of 6.0-6.5%.

Overall, researchers believe that Vietnam’s economy will face numerous destabilizing, unpredictable, and negative effects from the global economy in 2024. The accumulated effects of the global economic slowdown and instability since the COVID-19 pandemic are likely to continue affecting Vietnam’s economy, at least in the first half of 2024, before more positive and encouraging signs emerge.

Domestically, traditional growth drivers on the aggregate demand side (investment, consumption, and exports) remain weak, businesses continue to face numerous difficulties, and new growth drivers have yet to become clear. The financial and macroeconomic environment, including the monetary and financial system, the corporate bond market, the gold market, and the real estate market, still contains numerous risks. Institutional changes to facilitate new growth drivers have been slow to be enacted, while the performance of public duties remains slow because fear of making mistakes and taking responsibility is still widespread. Meanwhile, the quality of growth remains low, and the growth model has seen little improvement.

“Therefore, Vietnam’s economy is forecast to continue facing numerous difficulties and challenges in 2024. Achieving the growth target will be very difficult,” the report stated.

Explaining this assessment at the conference, Prof. Dr. To Trung Thanh, Head of the Department of Research Management at NEU, said that with no substantive improvement in the economic model, the Government would have to rely primarily on demand-side policies to achieve its high growth target in 2024 (in the short term).

“Aggregate demand-side growth drivers (investment, consumption, and exports) need to be restored quickly and further strengthened. Private investment is unlikely to increase substantially given the difficulties facing businesses, so increasing public investment disbursement and improving the quality of public investment capital play a crucial role,” To Trung Thanh said.

Prof. Dr. To Trung Thanh, Head of the Department of Research Management at NEU, speaks at the conference. Source: Organizing Committee

The Government needs to stimulate private consumption by maintaining macroeconomic stability, adjusting income taxes, improving the soundness of asset markets, and strengthening social security policies. Diversifying export markets and leveraging the foreign direct investment (FDI) sector to boost exports are also measures that require attention.

“However, in the long term, the economy cannot rely on public investment. Instead, measures are needed to improve the investment environment and unlock private investment resources so that private investment becomes the main and most important growth driver,” To Trung Thanh said.

Based on their analysis and assessment of Vietnam’s actual conditions and the global economic context, the authors offered several macroeconomic policy recommendations to boost aggregate demand. On the fiscal side, the Government could consider further strengthening countercyclical fiscal policy to boost aggregate demand and achieve stable growth amid a recession, particularly when the budget is not under excessive pressure and public debt is trending downward. Fiscal policy should be used actively and proactively to stimulate growth and address the problems associated with slowing growth. Specifically, the Government needs to accelerate public investment disbursement effectively and could consider further reductions in certain taxes and fees to support businesses and stimulate demand.

On the monetary side, the report stated that, to help credit growth reach its target, the State Bank of Vietnam (SBV) needs to issue and amend several legal documents related to access to credit. At the same time, the SBV needs to implement policies to improve access to credit, especially for small and medium-sized enterprises (SMEs), and reduce lending interest rates.

Examples include strengthening dialogue and connections between banks and businesses to improve information sharing and communication, understand needs, and promptly resolve difficulties and obstacles; and issuing specific regulations requiring credit institutions to publicly disclose important information on credit provision, such as average lending interest rates, fee rates, fee calculation methods, and average annual effective interest rates.

Source: CafeF

This is an automated translation. If you notice any errors, please contact the Department of Communications, National Economics University at phongtruyenthong@neu.edu.vn.