Vietnam's GDP growth: relieved and concerned

I'm relieved that the country has had a year of strong recovery despite the world being plagued by countless disasters: wars, epidemics, natural disasters. The global economy, which was severely damaged after two years of the Covid-19 pandemic, was further impacted by a military conflict that has resulted in many consequences: an energy crisis, a food crisis, broken supply chains, soaring prices and global inflation (reaching 8.8% in 2022, up from just 4.7% in 2021).

The fight against inflation took place in most countries using traditional tools such as raising interest rates and reducing the money supply through both fiscal and monetary policies.

This led to high interest rates, sharply fluctuating exchange rates, and high inventories. People and businesses also felt insecure and started tightening their spending and investment. Global economic growth is therefore estimated at about 3% in 2022, down sharply from the previous year's growth rate of 6%.

In this context, there are three explanations for Vietnam's growth. First was the decision to open up the economy early, allowing socio-economic activities to be restored more quickly. Second, the driving force for economic growth recovered quite evenly in sectors such as agriculture, industrial construction and services on the supply side. Meanwhile, on the demand side, the "three-horse chariot" of export, investment and consumption also recovered positively. And third, the year's figure for GDP growth was in comparison with the previous year's relatively low base.

Inflation remained at a fairly low level since Vietnam managed to basically control the supply of essential goods, food prices, gasoline prices and a part of housing-construction material prices; these three groups accounted for 67% of the year's CPI increase. At the same time, a number of supporting policies, including a tax and fee reduction, promoted recovery, supporting people and businesses and contributing to reducing inflation.

Customers ride an escalator at the supermarket in Hanoi, January 15, 2023. Photo by VnExpress/Ngoc Thanh

Prices of some state-managed utilities and services such as electricity, healthcare and education were stabilized and did not increase. Additionally, the low money supply (estimated to grow by only about 4% for the whole year, just half of the figure for 2021) and slow money turnover also caused inflation to rise more slowly. As a result, in 2023, Vietnam could afford to let inflation rise at a higher level to resolve the bottleneck in capital and in the delay of price increases for some of the essential goods mentioned above.

What worries me is that the global economy is forecast to suffer a recession in 2023, and only grow by about 2-2.2%, which has been strongly affecting economies with very high degrees of openness such as Vietnam, especially in the export, investment, consumer industry, international tourism and the financial-monetary markets. In fact, export orders of many companies have been decreasing, and the growth momentum of exports has been declining since August. Official statistics show that in Q4 of 2022, the export turnover of goods decreased by 7.1% compared to Q3 and by 6.1% over the same period last year. The sectors that suffer large decreases in orders are also the ones that employ the most workers, such as textiles, footwear, wood processing and electronics sectors.

The industrial production index in Q4 of 2022 only increased by 3%, down sharply from the 10.9% recorded in Q3. New, additional registered capital and FDI contributions in 2022 decreased by 11% compared to the previous year. Global financial-monetary risks, prices, interest rates and exchange rate fluctuations will all cool down in 2023, but will remain at high levels, negatively impacting Vietnam's financial-monetary market and the interest rate and exchange rate levels, all while the country's resilience capacity is just above average (and could worsen with poor management).

My second concern is with the internal factors of our country's economy. The disbursement of the state fund for public works and the implementation of several public projects to recover the economy has been tardy.

Domestic tourism recovered strongly in 2022, reaching more than 101 million visitors, up 19% compared to 2019, which was prior to the Covid-19 pandemic. However, international tourism only recovered by 20% compared to before the pandemic, mainly because adjustments to tourist visas have not been timely enough, and because many localities and travel agencies have not made any improvement to the way they operate tourism services.

The country's tourism sector therefore has been struggling to convince tourists to revisit and increase their spending.

The operation of companies and household businesses is still facing many difficulties. The number of companies that had to suspend their business activities in 2022 still increased by 34.3% over the same period, proving that the recovery has been uneven between sectors. Businesses still find it difficult to access capital, and some legal obstacles facing them (especially in the land, real estate, construction and infrastructure investment sectors) have yet to be resolved. The labor market is still posing many challenges, with some businesses having to cut staff and reduce working hours, mainly due to a lack of orders, inventory, debts piling up or partners changing business strategies.

The stock market and corporate and real estate bonds have been the subject of very strong adjustments, after more than two years of fast growth, revealing the risks and violations that need to be dealt with. The liquidity of the financial-monetary system being worse than in previous years has greatly affected the trust and mentality of investors. The oil and gas market sometimes still failed to coordinate and distribute in a timely manner, leading to local shortages, and causing difficulties for people and businesses.

Another concern of mine is regarding the improvement of institutions, including mechanisms and policies to tackle existing issues in the legal corridors for the development of the digital economy, new business models, the green economy and circular economy, the improvement of the investment-business environment, and the reform of administrative procedures. This process has been slower than expected, significantly reducing national competitiveness. The increase in labor productivity was also low at only 4.8% in 2022, which is quite far from the target of 6.5% for the period 2021-2025.

And finally, a very big concern that I mentioned before is the fear of making mistakes and of taking responsibility, which would reduce opportunities and increase the operating costs of the economy, requiring the government to be very clever and resourceful in responding to those problems. In parallel with the fight against negativity and corruption, there needs to be a mechanism to protect those who dare to think and dare to do.

In the midst of these many concerns, what makes me feel reassured is that in my meetings with many ministries, departments and localities, I noticed that the authorities have basically recognized these challenges and are determined to overcome them.

In 2023, there will be many challenges and many tasks to be completed, but at least, the ability to look directly at the nature of bottlenecks and accurately identify obstacles is an important basis for mapping out the right path for socio-economic recovery and development.

*Can Van Luc is an economist. He currently works as chief economist with state-owned lender BIDV.