Vietnam's economic recovery in H2 2023 set to be gradual: DBS Bank

Economic growth in the country rebounded in the second quarter (Q2) this year, but stayed sluggish, given the challenging global economic environment.

Real gross domestic product (GDP) growth in the quarter picked up modestly to 4.1 per cent year on year (YoY) from the first quarter’s 3.3 per cent.

Yet, at 3.7 per cent in the first half (H1) this year, the expansion was almost half of the pre-pandemic 2017-2019 trend of 7.2 per cent, DBS noted in a release.

Vietnam’s domestic services and foreign tourism will likely continue outperforming and stay supportive.

Public infrastructure spending should gain further traction as the economic recovery package for 2022-2023 rolls out, with the economy also held up by easier fiscal and monetary policies.

Yet, tight monetary conditions in advanced economies will likely restrain a strong upturn in global external demand for Vietnamese products and overall growth prospects, the multinational banking corporation said.

Despite the cyclical headwinds, foreign direct investment (FDI) will remain a structural tailwind amid global supply chain diversification this year, it observed.

Vietnam’s export-oriented manufacturing growth decelerated sharply amid global external headwinds, but bounced in Q2 2023. DBS thinks that a recovery is on the cards. A similar uptick was also seen in monthly goods exports figures.

Vietnam’s structural story of attracting FDI and position as a growing manufacturing hub remains intact despite short-term cyclical growth headwinds. DBS expects the country to remain a key beneficiary for re-location or co-location of production, supported by its already well-known and favourable factors.

These include competitive costs for a relatively skilled workforce, extensive free trade agreements, proximity to China, its bright medium-term growth prospects of 6-7 per cent and a growing electronics ecosystem.

Total newly registered FDI in the country grew by around 30 per cent YoY in H1 2023 after performing poorly in 2022.

Foreign investors still have high confidence in Vietnam’s long-term potential.

Fibre2Fashion News Desk (DS)