In this webinar, Dr Tuan Ho analyzed Vietnam’s economic challenges and opportunities in 2023 and what investors should watch out for. He also discussed the measures that the Vietnamese government should take to deal with the global headwinds and domestic challenges in the year ahead.
VIETNAM STUDIES PROGRAMME WEBINAR
Friday, 13 January 2023 – ISEAS – Yusof Ishak Institute hosted a webinar on “Vietnam’s Economy in 2023: Navigating Domestic Challenges and Global Headwinds” presented by Dr Tuan Ho, a Senior Lecturer at the University of Bristol Business School in the United Kingdom.
Dr Tuan noted that Vietnam registered a GDP growth rate of 8 per cent in 2022, turning it into one of the fastest-growing economies in the world. Vietnam’s macro-economic conditions were stable. Inflation stood at 3.15 per cent, which was relatively mild compared to Western economies. Credit growth was 12.87 per cent, while monetary growth was 3.85 per cent. The country recorded a trade account surplus of US$11.2 billion, while foreign direct investment (FDI) disbursement reached US$22.4 billion — a 20 per cent year-on-year increase. FDI registration decreased by more than 10 percent year-on-year to US$27.72 billion, which was nonetheless still positive given how major FDI sources of Vietnam, such as Japan, South Korea and China, were experiencing an economic slowdown.
However, in the final quarter of 2022, Vietnam’s economy faced significant headwinds. First, export orders dropped significantly due to the global economic slowdown, leading to decreased production. Consequently, unemployment has been rising in the manufacturing factor, affecting thousands of workers ahead of the Tet holidays. Dr Tuan suggested that this situation will likely continue in the next one or two quarters.
Second, Vietnam has been experiencing a credit crunch that peaked in October and November 2022. Dr Tuan explained that this resulted from recent developments in the corporate bond market. Companies, especially in the real estate sector, had been switching from borrowing from banks to issuing bonds because there were certain restrictions on commercial banks’ lending to real estate projects. Moreover, regulatory changes regarding the corporate bond market also made it easier for companies to issue bonds.
However, to deal with rising risks generated by excessive bonds issued by local companies, in September 2022, the government issued Decree 65 to tighten regulations on the bond market. As a result, in October and November 2022, there was a sudden suspension of new bond issuances. Dr Tuan argued that the root cause of the problem is the cross-ownership between banks and real estate companies. These companies borrowed heavily from the banks that they hold shares in via their network of affiliates and nominees. This practice exposed the whole banking system to great risks, prompting the government to take measures to mitigate them, including by tightening the corporate bond market.
However, what happened in the bond market had spillover effects on the whole economy. The poorly timed crackdown on the bond market, together with the rising interest rates, cause difficulties for companies to get access to credit. Moreover, the delayed disbursement of public-funded projects also exacerbated the credit crunch because the money from such projects could not flow into the economy quickly enough.
In December 2022, the central bank added 2 per cent to the credit growth target to stabilise the financial system. This eased the credit crunch, but Dr Tuan was concerned that such an approach would not be sustainable and that the credit crunch would linger on in the first few months of 2023.
On the bright side, the growth prospect of Vietnam in 2023 is still better than that of most other Southeast Asian countries. According to the Asian Development Bank, Vietnam’s GDP growth in 2023 may be around 6.3 per cent. Inflation is rising but will still be under 5 per cent, in line with the government’s planning.
On the upsides, Dr Tuan expected the continued macro stability in Vietnam, as well as the recovery of global exports, easing inflation, and improved global supply chain in 2023. In addition, the reopening of China will also help to increase bilateral trade and ease supply chain disruptions.
However, Dr Tuan cautioned that the global slowdown might be worse than expected. He is particularly concerned that inflation could rise again due to unexpected events. Another major concern is the possible return of the credit crunch. Finally, the issue of public investment disbursement stagnation would likely persist. Dr Tuan, therefore, suggested that Vietnamese policymakers should exercise more prudence in handling the bond market and try to improve the disbursement of public investment funds.
In the Q&A section, Dr Tuan answered the audience’s questions about the biggest risks for Vietnam’s economy, the prospect of Vietnam’s real estate sector in 2023, the Vietnamese government’s crackdown on the corporate bond market, reasons behind the slow pace of public investment disbursement, and the impacts of US-China trade war and China’s reopening on Vietnam’s economy.