Vietnam PM says government economic growth target to remain unchanged at 6.5%Prime Minister Pham Minh Chinh has expressed Vietnam’s objective to maintain its growth target of 6.5% for 2023. Additionally, the government is making efforts to achieve an economic expansion of approximately 9% during the remaining period of the year. They plan to focus on three key growth drivers: investment, consumption, and exports to achieve the expansion. Additionally, Chinh emphasized the importance of balancing interest and exchange rates to support economic development.
Vietnam’s gross domestic product growth is below the 6.5% target
Vietnam’s trade-dependent economy faces challenges due to a global decline in demand for goods and the impact of high-interest rates. Consequently, the country risks falling short of its 6.5% economic growth target this year. In response, the government is exploring various measures to salvage the situation. One approach involves exerting pressure on the central bank to lower borrowing costs which aims to stimulate credit growth and bolster economic activity.
Chinh has asked the central bank to adopt more flexible monetary policies. The suggested actions include further lowering commercial lending interest rates, increasing the money supply, raising credit limits for banks, and extending loan repayment deadlines for borrowers. Despite the central bank having already cut interest rates four times since the beginning of the year, it has been cautious about further easing policies. This hesitancy has been due to concerns about potential bad debt that could threaten financial stability.
The Prime Minister has also advised various ministries to implement a prudent fiscal policy expansion. These measures include offering tax breaks, expediting government spending on crucial infrastructure projects, streamlining administrative processes, and attracting more foreign investment. He then highlighted that the government focuses on revitalizing the property market and stimulating domestic consumption to offset the decline in exports.
Vietnam experienced a continuous drop in overseas shipments for the fifth consecutive month in July, marking the longest slump in 14 years. Government data revealed that headline inflation remained relatively stable in July compared to last year’s period, standing at 2.06%. However, the core measure, which excludes food, fuel, health care, and education services, increased by 4.1% in July.
Strong year ahead for Vietnam
Khanh Vu, the deputy managing director at VinaCapital Fund Management, views the current economic developments in Vietnam positively. He notes that after witnessing a rise in interest rates last year, rates have decreased in recent months, with four policy rate cuts in the past three months. That has led to lower bank deposit rates, which now stand at around 7%, and lending rates have also reduced to approximately 8% to 9%. These rate cuts are expected to support economic growth in the country.
Vu anticipates that the market will experience an average of 10% earnings growth in 2023 and 25% in 2024 with an improved business cycle and increasing profits and earnings growth. Prudent lending practices have directly contributed to economic growth, particularly in the manufacturing, transport, logistics, and construction sectors. He believes this growth will positively impact Vietnam’s stock market, mainly driven by domestic retail investors. As confidence and liquidity rise, this positive sentiment will spread to retail investors, who constitute approximately 90% of the country’s market participants.
However, the real estate sector faces challenges, with liquidity drying up. Nevertheless, there is a push to increase construction activity. Due to the shortage of affordable units, there is still strong demand for housing, especially in Hanoi and Ho Chi Minh City. The sector could see some improvement as mortgage rates have reduced by about 2% in recent months, ranging from 9% to 11%.
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