With a series of data released in the first half of the year, Vietnamese officials have now generously admitted that the gross domestic product (GDP) target set this year should not be met.
Vietnam's GDP growth rate in the first half of 2023 was 3.72%, far below the previous target of at least 6.2% in the first half of the year. In this regard, Nguyen Thi Huong, director of the General Investment Bureau of Vietnam's Ministry of Planning and Investment, told the media a few days ago that under the current circumstances, the target of 6.5% annual economic growth will be difficult to achieve.
In order to stimulate the economy, the Vietnamese government has introduced a lot of stimulus measures, Vietnamese Prime Minister Pham Minh Zheng on July 4 asked the central bank's monetary policy to be "more flexible and loose", since the beginning of this year, the central bank has lowered the benchmark interest rate four times in a row.
Zhou Shixin, associate researcher of the Asia-Pacific Research Center of the Shanghai Institute of International Studies, told the first financial reporter that Vietnam's economy is export-oriented, the European and American markets are weak, and the problems of the external environment have put pressure on the Vietnamese economy. Despite Vietnam's efforts, it has not been able to effectively reverse the current passive situation. In addition, many Southeast Asian countries face similar difficulties.
Export orders plummeted, superimposed on the power shortage
According to data released by the General Bureau of Statistics of Vietnam a few days ago, GDP in the second quarter grew by 4.14% year-on-year, which was higher than expected. However, the 3.72% growth rate from January to June is the second lowest growth rate in the first half of the past decade, only higher than the 1.74% in the first half of 2020 at the beginning of the epidemic.
In this regard, Vietnamese officials explained that although Vietnam's economic growth in the first half of 2023 did not meet expectations, it is still a reasonable growth rate in the context of the current weak global economy.
Nguyen Thi Huong said that the momentum of industrial production, exports and tourism have not fully recovered, and due to external difficulties and challenges, export orders have declined, dragging down economic growth.
According to the latest statistics from the General Administration of Customs of Vietnam, in the first six months of 2023, Vietnam's exports of goods amounted to about US$164.45 billion, down 12.1% year-on-year. For many years, Vietnam's economy has been dependent on exports, but since the beginning of 2023, Vietnam has struggled with exports due to rising global inflation and declining demand from external markets.
With Vietnam's economic growth in recent years, domestic demand has increased significantly, but it is far from compensating for the rapid decline in external demand. More than 90% of Vietnam's dominant manufacturing and processing industries, such as textiles, clothing, footwear, electronics, etc., are exported, and domestic demand accounts for only 10%.
Orders were reduced and the factory was forced to lay off workers. According to the General Statistics Office of Vietnam, more than 200,000 workers in Vietnam lost their jobs in the second quarter. The areas with the highest levels of unemployment are Ho Chi Minh City and Binh Duong province in southern Vietnam. Ho Chi Minh City's unemployment rate reached 3.7 percent. The unemployed are concentrated in the textile, wood products and electronics industries, and many are trying to move to the service sector for re-employment.
And workers who are not unemployed have a hard time. South Korea's Samsung, Vietnam's largest foreign-owned company, has previously attracted local job seekers for offering higher-than-industry salaries. Now that orders are not saturated, for employees who are still on the job, Samsung has cut working hours, and some positions are called to work one day a week, and workers' incomes have fallen sharply.
According to veteran employees, the workers' dormitories that assemble smartphones and Apple headphones are now only half occupied, the first time in more than a decade of experience.
Zhou Shixin told the first financial reporter that the development of Vietnam's economy is heavily dependent on external raw materials and external markets, and its stability is poor. Vietnam is now also focusing on the introduction of high-tech and high value-added industries. Although it is still in its infancy, the policy support is very strong, which will contribute to the sustainable development of Vietnam's industry in the long run.
In addition to external factors, northern Vietnam also suffered a power shortage in June, with industrial parks arranging alternating power outages and forced factory production to be interrupted, exacerbating Vietnam's manufacturing and export crisis. Jean-Jacques Bouflet, Vice President of the European Chamber of Commerce in Vietnam, said: "Vietnam's Ministry of Industry and Trade should take urgent measures to avoid damage to Vietnam's reputation as a reliable global manufacturing hub. ”
Zhou Shixin told reporters that on the whole, this round of Vietnam's power crisis is related to the rapid development of Vietnam's economy in recent years, but the guarantee of power infrastructure has not kept up in time, and extreme weather is frequent, which further aggravates the crisis.
On the evening of July 4, Du Shenghai, deputy minister of the Ministry of Industry and Trade of Vietnam, told the media that some units of Vietnam's thermal power plants have been repaired in time, and 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 life in the country.
The Vietnamese government has yet to announce new growth forecasts for this year. In its latest report released at the end of June, the International Monetary Fund (IMF) projected Vietnam's economic growth at 5.8%.
Other market institutions, however, are more cautious. Singapore's United Overseas Bank (UOB) Global Market and Economic Research lowered its 2023 GDP growth forecast from 6% to 5.2% in its 2023 economic growth report for the second quarter of 2023.
Vietnam's "radical" stimulus
In response to concerns about Vietnam's weak foreign trade, Pham Minh Zheng responded to concerns about Vietnam's weak foreign trade on June 27 at the World Economic Forum's 14th Annual Meeting of the New Champions, known as the Summer Davos Forum. He called on governments to take responsibility, such as restoring employment as soon as possible and accelerating the opening of capital flows. International institutions also need to get involved and come up with preferential policy solutions.
Fan Mingzheng is not just talking. On July 4, he said at a government work conference that "Vietnam's central bank has adjusted monetary policy, but more needs to be done," calling for Vietnam's monetary policy to be "more flexible and loose."
In fact, Vietnam has lowered interest rates four times so far this year to stimulate economic growth, in stark contrast to the many rate hikes by the world's major economies. Vietnam's most recent rate hike was on June 19, when the central bank cut its main refinancing rate from 5% to 4.5% and the discount rate from 3.5% to 3%. Vietnam hopes to create easy conditions for enterprises and people to obtain loans.
According to UOB, Vietnam's interest rate will be cut by a further 100 basis points in the third quarter, i.e. the refinancing rate will be reduced to 3.5%. Even so, UOB believes downside risks remain for Vietnam's economy, especially if exports and manufacturing do not show any significant improvement in the coming months, and the 5.2% growth rate this year may be difficult.
Finance Minister Hu Duc Phuc also said in June that Vietnam needed to take positive measures to achieve this year's economic goals, including extending the deadline for paying taxes and reducing "radical measures" such as VAT and gasoline taxes.
Vietnam's Ministry of Finance has decided to reduce the VAT rate from 10% to 8% from July 1 until the end of this year. It is hoped that this will promote the recovery and development of production and business activities as soon as possible, and contribute to the national budget and economic growth.
The WTO expects global trade in goods to grow by 1.7 percent this year, significantly below the 2.6 percent average over the past 12 years. Inflation remains high in major advanced economies, continued interest rate hikes have dampened investment and consumer demand, and imports have fallen year-on-year for several months. Affected by this, exports from South Korea, India, Vietnam and Taiwan have all declined significantly in recent months, and exports to the United States and Europe have been sluggish.
In the face of a relatively harsh external environment, Vietnam's stimulus policy can only be "minor repairs" in the overall economy. Vietnamese economic circles believe that the current difficulties may continue until the end of 2023, or even until 2024.
Vietnamese economic commentators said that in this special period, Vietnamese enterprises need to minimize working capital, suspend expansion plans, only consider deep investment, and pay close attention to market trends, so as to carry out flexible production, effectively respond to emerging problems, and reduce unnecessary costs.
Due to the impact of the global economic boom, Vietnam's economy will inevitably be affected in the short term, but the fundamentals of its long-term growth have not changed. It is widely believed that if the medium-term outlook for Vietnam's economic development prospects in the next five years is carried out, its growth momentum will remain relatively strong, and a number of key drivers will still drive Vietnam to become one of the fastest growing emerging markets in Asia.