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Home » Vietnam’s Economy Likely to Rebound in 2H – Foreign Company Orders Also Seen to Increase

Vietnam’s Economy Likely to Rebound in 2H – Foreign Company Orders Also Seen to Increase

by Kimo Vongphakdy
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HO CHI MINH CITY: With the government’s initiatives to address disappointing gross domestic product (GDP) growth in the first quarter (1Q) and foreign companies’ orders likely to increase in the second half of the year, the economy is expected to rebound then, says Michael Kokalari, chief economist at investment fund VinaCapital.

In his latest report, he said GDP growth in Vietnam slowed precipitously in 1Q as consumers in the United States and other developed markets cut purchases.

Manufacturing accounted for a quarter of Vietnam’s GDP and output contracted slightly in 1Q as against 9% growth a year earlier since most products made in the country were exported to the United States and other developed countries.

Vietnam’s international trade accounted for a higher percentage of its GDP than in any other nation in modern history (excluding city-states like Hong Kong and Singapore), and so weaker demand in the rest of the world weighed fairly heavily on its economy.

“Vietnam’s exports fell 12% year-on-year in 1Q, driven by a 20% drop in exports to the United States.

“Meanwhile, inventories at US retailers and other consumer-facing firms such as Nike and Lululemon are now contracting, which is why we expect foreign direct investment factories’ order books to start recovering later this year – inventories’ year-on-year growth looks likely to fall to 0% in the second half (2H) – which should prompt a resumption of order growth for Vietnam.

“Finally, domestic consumption continues to grow at a healthy pace and consumer confidence has remained remarkably resilient despite the sharp slowdown in GDP growth.

“In addition, foreign tourist arrivals skyrocketed to over 60% of pre-Covid levels in 1Q despite the fact that Chinese tourists have not yet returned to the country en masse – which is another reason we expect Vietnam’s economic growth to recover in 2H.”GDP growth slowed from 8% in 2022 to just 3.3% in 1Q, prompting the government to launch several initiatives to boost growth.

The Finance Ministry has finalised plans to cut the value added tax rate from 10% to 8% in 2H, equating to a stimulus of around US$1.5bil (RM6.68bil) for Vietnam’s US$450bil (RM2 trillion) economy.

The government will also allow companies and individuals to defer payment of various taxes by three to six months.

Last month the State Bank of Vietnam cut policy rates by 50 basis points (bps) to 100 bps, including a 50 bps reduction in the refinancing rate to 5.5% and a 50 bps reduction in the maximum interest rates banks are allowed to pay savings deposits of up to six months to 5.5%.

The government also walked back some stricter conditions it introduced in late 2022 on the issuance of corporate bonds, Kokalari said.

It had directed ministries to address various administrative bottlenecks impeding real estate and infrastructure development.“The government has taken a series of initiatives to address the country’s slowing growth, the most concrete of which are tax cuts and interest rate cuts, but administrative measures intended to ease bottlenecks impeding real estate development and infrastructure projects could have an even bigger impact on growth in 2023 and beyond.

“The fact that stock markets tend to start climbing in advance of economic rebounds, coupled with the fact that the Vietnam index is trading at around a 10-year low valuation, leads us to believe that now could be an ideal time for investors to selectively purchase Vietnamese stocks.”

Interest rates on short-term deposits in Vietnam had peaked in late-2022, and the policy rate cut last month would create additional downward pressure on those rates. “Consequently, there will be many bank deposits maturing in 2Q and 3Q and savers will essentially face a choice of rolling over their deposits at lower interest rates or ploughing that money into the stock market.“The vast majority of time deposits in Vietnam are three-month and six-month deposits.”

Source : The Star

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