Key Indicators and Growth Forecast for Vietnam's Economic Performance in the First Half of 2024

In the first half of 2024, Vietnam demonstrated strong performance across various indicators, leading the General Statistics Office (GSO) to forecast a 6-6.5 percent growth rate for the year, in line with the government's objectives. The GSO reported a 6.42 percent year-on-year GDP growth for Vietnam in H1 2024, slightly lower than the 6.58 percent recorded in the same period in 2022. The GSO credited Vietnam's robust economic performance to the resilience of the global economy amidst uncertainties and fluctuations. Below, we will delve into Vietnam's economic data for H1 2024 and the projected growth for the remainder of the year.

Projections for Vietnam's GDP and Growth in 2024

The growth forecasts for Vietnam in 2024 remain at 6 percent as projected by The United Overseas Bank (UOB), The Asian Development Bank, Standard Chartered, and HSBC. The International Monetary Fund (IMF) team led by Paulo Medas reported a 6.4 percent year-on-year growth in Vietnam's economy for H1. AMRO revised its GDP growth forecast for Vietnam to 6.3 percent from 6 percent in its April report, while maintaining a 6.5 percent increase for the 2025 projection in a July ASEAN+3 regional outlook report.

Deputy Minister of Planning and Investment Tran Quoc Phuong mentioned during the government’s regular press briefing in Hanoi on July 6 that registered foreign direct investment (FDI) is expected to reach US$40 billion this year. The Central Institute for Economic Management (CIEM) reported that real GDP growth had exceeded its potential for four consecutive quarters. CIEM projected two scenarios for this year’s GDP growth: In the normal scenario, GDP is expected to reach 6.55 percent, inflation at 4.32 percent, and export growth at 9.54 percent. In a more positive scenario, GDP could expand by nearly 7 percent, with average inflation lower at 4.12 percent, and export growth exceeding 11.64 percent.

Investments

FDI

In the first half of 2024, Vietnam saw a 13.1 percent increase in FDI inflows, reaching nearly US$15.2 billion according to the GSO. Foreign investors registered about US$9.54 billion in 1,538 new projects, reflecting a 47 percent rise in capital and a 19 percent increase in the number of projects compared to last year. They also spent US$3.95 billion in additional capital and US$1.698 billion on capital contributions and share purchases.

During this period, Vietnam disbursed US$10.842 billion in capital, marking an 8.2 percent annual increase and the highest record in the past five years. Singapore led the list of prominent investors with US$5.579 billion, followed by Japan with US$1.731 billion, Hong Kong (China) with US$1.730 billion, South Korea with US$1.411 billion, and China with US$1.299 billion. These investments accounted for significant percentages of the total FDI inflow into Vietnam.

Public investments

There has been a noted lack of disbursement of public investment funds, with allocated capital remaining unused and several ministries and departments failing to disburse their funds. Additionally, the total public investment resources for 2024 are lower than the previous year. In the first half of 2024, Vietnam only had one initial public offering (IPO) according to global consultancy Deloitte. DNSE Securities JSC listed on the Ho Chi Minh Stock Exchange (HoSE) and raised US$36.9 million, surpassing the market performance of the three IPOs in 2023. The launch of Vietnam's new stock trading system, KRX, has been delayed from its initial planned date to September 2024.

Trade

Vietnam's export revenues from January to June 2024 reached US$190.08 billion, marking a 14.5 percent increase compared to the previous year. Import expenditures also saw a 17 percent rise, totaling US$178.45 billion. This led to a trade surplus of US$11.63 billion, which was lower than the US$13.4 billion surplus in the first half of 2023.

Notably, the FDI sector recorded export revenues of US$136.69 billion, a 12.3 percent year-on-year increase, with import expenditures rising by 14.1 percent to US$112.71 billion, resulting in a trade surplus of US$23.98 billion. In contrast, the domestic sector experienced a trade deficit of US$12.35 billion.

Key trade partners

During the first half of 2024, China emerged as Vietnam's primary trade partner, with a total trade value of US$94.8 billion. The U.S. followed closely at US$61.4 billion, with the ASEAN bloc at US$40.8 billion. Vietnam's largest import market was China, while the U.S. was the leading destination for its exports. Specifically, Vietnam saw a 34.7 percent year-over-year increase in imports from China, amounting to US$67 billion, and a 5.3 percent increase in exports to China, totaling US$27.8 billion. Exports to the U.S. also experienced a significant rise of 22.1 percent year-over-year, reaching US$54.3 billion, while imports from the U.S. increased by 2.8 percent to US$7.1 billion. Other notable trade partners for Vietnam included South Korea, the EU, and Japan, with total trade values of US$38.4 billion, US$32 billion, and US$21.7 billion, respectively.

Industry

The industrial production sector saw a 7.54 percent increase from the first half of 2023 to the same period this year, with the manufacturing and processing industry driving overall economic growth. The S&P Global Vietnam Manufacturing Purchasing Manager’s Index (PMI) rose to 54.7 in June 2024 from 50.3 the previous month, indicating improved business conditions and marking a third consecutive month of growth.

At the same time, the General Statistics Office (GSO) reported that 56 industries saw a rise in the Industrial Production Index (IIP), while seven industries experienced a decline. Additionally, the World Bank (WB) noted a 2.6 percent month-on-month increase in Vietnam’s IIP for May in a separate report dated June 19.

However, the increase in new orders put significant pressure on operational capacity, leading to noticeable backlogs for the second time in three months. Furthermore, data shows that growth rates in certain service sectors, such as wholesale and retail, automobile and motorcycle repair, and finance and banking, were less strong compared to the first half of 2023.

Employment Situation

In the first half of 2024, the GSO reported that Vietnam's unemployment rate was 2.27 percent, consistent with the previous year. The urban and rural unemployment rates were estimated at 2.68 and 2 percent, respectively.

The unemployment rate for individuals aged 15 to 24 is believed to have increased to 8 percent, a 0.49 percentage point rise from H1 2023. The projected annual rate for 2024 is 8.02 percent, a 0.6 percentage point increase from the previous year.

As of June, Vietnam's workforce aged 15 and above is estimated at 52.5 million people, with an increase of 196,600 compared to the previous year. This includes 27.86 million males and 24.6 million females, with respective increases of 110,100 and 86,500 year-on-year. Approximately 51.4 million people aged 15 or older were employed in H1 2024.

The service sectors employed the largest portion of the workforce, with 20.7 million workers (40.2 percent), followed by industry and construction with 17 million (33.1 percent), and agriculture-forestry-fisheries with 13.7 million (26.7 percent).

Regarding labor income, the GSO reported that in H1 2024, the average monthly income for contracted workers was around VND7.5 million (US$295), an increase of VND519,000 (US$20.4) compared to the previous year. Male workers with labor contracts earned an average monthly income of VND8.5 million (US$334), while female workers earned about VND6.4 million (US$251.4). In urban areas, the average monthly income was VND9.1 million (US$357), while in rural areas, it was VND6.5 million (US$255).

Inflation

Vietnam's economy is under significant pressure, especially in key macroeconomic indicators such as inflation. Core inflation has risen by 2.75 percent, and the average Consumer Price Index (CPI) has increased by 4.08 percent in the first half of 2024 compared to the same period last year, exceeding the lower end of the annual target range of 4-4.5 percent. The CPI has consistently shown an upward trend on a monthly basis.

Inflation is expected to continue increasing due to fluctuations in supply, global price volatility, and higher demand for electricity and services like transportation and tourism during the peak summer season. Wage hikes that came into effect on July 1, along with expected adjustments in prices of state-controlled items such as electricity, medical services, and education, are also likely to contribute to inflationary pressures.

Domestic consumption has shown some improvement but has not met expectations. The total value of retail sales and consumer service revenue (excluding price factors) has only increased by 5.7 percent over the past six months, falling significantly below anticipated levels.

Important considerations for businesses to focus on

In spite of positive developments in various areas, Vietnam's economy is at risk of potential currency depreciation and increased public wages, which may have a negative impact on businesses. The State Bank of Vietnam (SBV) needs to closely monitor and take responsive measures to effectively manage these risks.

Enterprises are also facing ongoing challenges such as persistent issues in the business environment, limited access to capital, and higher input costs in a competitive output market.

Experts advise businesses and industries to proactively take measures to mitigate potential negative impacts:

- Keep a close watch on production and business conditions to anticipate emerging risks.

- Advocate for policies that remove barriers and allocate resources effectively to businesses and production facilities, especially in processing, manufacturing, and market services.

- Strengthen connections between production and distribution channels, benefiting from efficient public investment disbursement.

- Innovate trade promotion strategies to take advantage of market recovery trends and exploit export opportunities.

The National Assembly has extended a 2 percent reduction in value-added tax (VAT) on selected goods and services until the end of the year to boost demand. Some suggest extending this policy until 2025 and implementing deeper VAT cuts to further stimulate consumer spending.