Vietnam's economic growth will slow down in 2023 due to the drag of exports, but GDP growth will be better than that of neighboring countries

Executive Summary:

Vietnam's GDP grew by 5.1% at comparable prices and 7.2% at current prices in 2023. The decline in merchandise exports had a negative impact on Vietnam's economy, especially the manufacturing sector, but recovery began in the second half of the year. Vietnam's strong domestic demand has sustained the rapid growth momentum of trade and tourism. Vietnam's economic target for 2024 is GDP growth of 6%-6.5%, and the main economic measures are to increase personal income and improve the social security system.

1. Vietnam's GDP will grow by 5.1% at comparable prices and 7.2% at current prices in 2023.

According to data obtained by the Bull Riding Institute from the official website of the General Statistics Office of Vietnam, Vietnam's social economy has maintained a recovery momentum in 2023, inflation has been controlled, many important achievements in the economic field have achieved the set goals, and although exports have decreased, the economy still has a rapid growth and continues to be a bright spot in the Southeast Asian region and the world economy.

At current prices, Vietnam's GDP size in 2023 is preliminarily estimated at VND 10,222 trillion, equivalent to USD 428.4 billion. At current prices, it increased by 7.5 percent from VND 9,513 trillion in 2022, by 4.8 percent in US dollar terms from USD 408.8 billion in 2022, and by 5.1 percent at comparable prices, from 2022.

Vietnam's economic growth rate in 2023 is the third year of low growth since 2011. However, the horizontal comparison is still a high growth achievement.

Vietnam's per capita GDP in 2023 is estimated at VND101.9 million/person, equivalent to US$4,284, an increase of US$160 or 3.9% from 2022 at current prices.

In Vietnam's GDP, agriculture, forestry and fishery increased by 3.83 percent, contributing 8.84 percent, industry and construction increased by 3.74 percent, contributing 28.87 percent, and services increased by 6.82 percent, contributing 62.29 percent.

From a seasonal point of view, Vietnam's national economy has shown a positive trend of accelerating growth quarter by quarter. Specifically, GDP grew by 6.7% in the fourth quarter of 2023 over the same period, higher than in the fourth quarter of 2012-2013 and the fourth quarter of 2020-2022, and also higher than the growth rate of 3.4% in the first quarter, 4.3% in the second quarter, and 5.5% in the third quarter).

From the perspective of GDP use in 2023, final consumption increased by 3.52% compared with 2022, contributing 41.04% to the overall economic growth rate, cumulative assets increased by 4.09%, contributing 26.64%, exports of goods and services decreased by 2.54%, imports of goods and services decreased by 4.33%, and the balance of imports and exports of goods and services contributed 32.32%.

2. The decline in commodity exports has adversely affected Vietnam's economy, especially the manufacturing sector, but it has begun to recover in the second half of the year.

Against the backdrop of the continuous tightening of monetary policies in countries around the world and the decrease in export orders due to the decline in aggregate demand in the world, Vietnam's total import and export of goods in 2023 amounted to US$683 billion, down 6.6% from the previous year. Among them, exports were 355.5 billion US dollars, down 4.4 percent, and imports were 327.5 billion US dollars, down 8.9 percent. This is the first time that Vietnam's import and export growth has declined in the period 2012-2023, thus clearly demonstrating the huge impact of the world economy on Vietnam's economy due to the decline in aggregate demand.

However, Vietnam's trade surplus in goods was as high as $28 billion, as imports fell more than exports. This is an increase of 131.4% from last year's US$12.1 billion, which has played a good role in supporting Vietnam's balance of payments and the exchange rate of the Vietnamese dong.

On a monthly basis, Vietnam's exports of goods reached US$96.5 billion in the fourth quarter of 2023, up 8.8% year-on-year and 3.2% quarter-on-quarter from the third quarter. The recovery trend began in the third quarter. The turnover of goods exports in December 2023 was US$32.91 billion, up 5.7% month-on-month.

In Vietnam's commodity exports, foreign-funded enterprises have carried the banner. In 2023, Vietnamese enterprises will only have US$95.55 billion, down 0.3 percent, accounting for 26.9 percent of total exports, while foreign-funded enterprises will reach US$259.95 billion, down 5.8 percent, accounting for 73.1 percent.

The $28 billion trade surplus is actually due to lower import growth than export growth (down 8.9 percent compared to 4.4 percent export growth), suggesting that domestic manufacturing firms serving exports are also negatively affected by the order shortage, so they do not import production input materials.

However, while there is a large trade surplus in trade in goods, Vietnam's trade deficit in services still exists. According to the General Statistics Office of Vietnam, in 2023, the export value of services will be US$19.59 billion, an increase of 44.9% from 2022, of which transport services will be US$5.5 billion, accounting for 28.1%, down 1.8% year-on-year.

Vietnam's service imports in 2023 amounted to US$29.06 billion, up 5.9% from the previous year. Among them, transportation services reached US$12.6 billion, accounting for 43.3% of the total turnover, down 0.4%, and tourism services reached US$7.8 billion, accounting for 26.9%, up 17.3%.

As a result, Vietnam's trade deficit in services in 2023 will be US$9.47 billion. However, in terms of total imports and exports of trade and services, Vietnam still has a trade surplus of US$18.53 billion.

In addition, due to the shortage of funds for overseas interest rate hikes and balance sheet reduction, newly established enterprises in Vietnam in 2023 still face many difficulties in obtaining funds. The total registered capital of newly established enterprises in 2023 will be VND 1,521.3 trillion, a decrease of 4.4% from the previous year. The average registered capital of newly established enterprises in 2023 will only reach VND 9.6 billion, a decrease of 10.8% compared to 2022.

Affected by the sharp decline in exports in the first half of the year, due to the lack of production orders, the output of some key industries in Vietnam has declined, and the added value of the manufacturing industry in 2023 will only increase by 3.02% compared to the previous year, the lowest increase in the period from 2011 to 2023.

However, the manufacturing sector recovered rapidly in the second half of the year, especially in the fourth quarter, and in the last months of 2023, Vietnam's manufacturing and service trade were full of vitality and maintained a high growth compared to the previous year.

3. Vietnam's strong domestic demand has maintained the rapid growth momentum of trade and tourism.

While exports and manufacturing have dragged down economic growth, Vietnam's strong domestic demand and strong tourism industry have continued to maintain a high growth momentum in 2023, making a positive contribution to macroeconomic growth. In 2023, the added value of Vietnam's service industry increased by 6.82% year-on-year, which was 2.01 and 1.75% higher than the growth rate in 2020-2021.

Specifically, in 2023, Vietnam's wholesale and retail trade increased by 8.82 percent over the previous year, transportation and warehousing increased by 9.18 percent, banking and insurance activities increased by 6.24 percent, and accommodation and catering services increased by 12.24 percent.

Vietnam's tourism industry, especially international tourism, has recovered very rapidly. In 2023, in Vietnam's trade in services, the value of tourism services reached US$9.2 billion, an increase of 1.9 times compared to 2022. The export of services is the cost of foreigners traveling to Vietnam, which is really impossible to brag about.

Due to the strong domestic demand in Vietnam, the task of controlling inflation in Vietnam is more obvious. Vietnam's consumer price index (CPI) rose by an average of 3.3% in 2023, exceeding the moderate inflation standard of 2% in economics and being in the moderate inflation range.

Among them, in December 2023, Vietnam's CPI rose by 3.6% year-on-year. In horizontal comparison, Vietnam is still one of the countries that control inflation well. Vietnam's National Assembly has set an inflation control target of 4.2% for 2023.

 4. Vietnam's economic target for 2024 is GDP growth of 6%-6.5%, and the main economic measures are to increase personal income and improve the social security system.

In 2024, Vietnam's National Assembly has set an economic target of a GDP growth rate of between 6-6.5% and a per capita GDP of about US$4,700-4,730. In order to achieve this development goal, Vietnam's planned economic measures are:

First, increase public investment, especially in infrastructure, which Viet Nam sees as one of the key drivers of growth.

Second, continuing to attract investment and attracting foreign direct investment will continue to be a bright spot for Vietnam, which remains one of the top choices for FDI inflows.

Third, continue to increase labor income. Vietnam will implement wage reform from July 1, 2024, to close the wage gap between civil servants and enterprise workers.

Fourth, improve the social security system. In 2024, Vietnam's finance budget will be 11 trillion VND to increase pensions.

Fifth, improve the market economy. The specific measures are monetary policies that support easy access to credit capital by enterprises, and remove difficulties and obstacles in land, real estate, construction, tourism and capital markets.

Sixth, reduce market transaction costs. Vietnam plans to reduce and defer tax cuts while reducing other government fees to support companies to explore new markets.

Seventh, strengthen foreign economic and trade ties. The specific measures are to make good use of the signed free trade agreements, strengthen negotiations and sign new agreements, strengthen the reform of administrative procedures in Vietnam, and create a clear business environment for enterprises.

[Author: Xu Sanlang]