Vietnam 2023 economic growth slows to 5.05% as exports fall

By Khanh Vu

HANOI (Reuters) -Vietnam’s economic growth slowed to 5.05% this year from an expansion of 8.02% last year, official data showed on Friday, weighed by weak global demand while public investment stalled amid an intensified anti-graft crackdown.

This year’s gross domestic product (GDP) growth was below a government target of 6.5% and lower than average growth of 5.87% during the previous decade, according to data released by the government’s General Statistics Office (GSO).

Vietnam is a regional manufacturing hub that relies heavily on trade. Exports in 2023 fell 4.4% from last year to $355.5 billion, with shipments of smartphones, its largest foreign currency earner, dropping 8.3%, the GSO said in its report.

Its industrial production index in 2023 rose 1.5% from last year, while average consumer prices in the year rose 3.25%, according to the GSO. Retail sales were up 9.6%.

“Though this year’s growth is below a government target of 6.5%, it is still a positive result, putting Vietnam in the group of the fastest growing economies in the region and in the world,” the GSO said.

Imports in 2023 fell 8.9% to $327.5 billion, resulting in a trade surplus of $28 billion for the year, according to the report. A large trade surplus is supportive for the dong currency, but a sharp fall in imports could indicate a slowdown in manufacturing activities in the months ahead.

The country’s central bank, in an effort to boost economic growth, has this year cut its policy rates four times, reducing its refinance rate and discount rate by an accumulated 150 basis points each, but credit growth remains much weaker than its target of 14%.

Overall credit growth in the economy as of end-November was 8.2%, according to data from the State Bank of Vietnam, the country’s central bank, which said the “the economy was still facing difficulties with a slow economic recovery and therefore the demand for loans was weak”.

To compensate for the fall in exports, Vietnam has decided to extend a value-added tax cut to boost domestic consumption, while authorities have sought to speed up public investment, mostly on infrastructure.

But public investment has stalled this year amid an intensification of the country’s “blazing furnace” anti-corruption campaign, which has often paralysed activities.

Disbursement of public funds in the year to the end of November was estimated at 461 trillion dong ($18.98 billion), meeting only 65% of the target set for the year, according to the Ministry of Planning and Investment.

For the fourth quarter of this year, GDP grew 6.72% from a year earlier, faster than an expansion of 5.47% in the third quarter and a growth of 5.92% in the same period last year, according to the GSO. Third quarter GDP growth was revised up from 5.33%.

Capital Economics, however, said the fourth-quarter momentum is unlikely to last if exports weaken and commercial banks pull back on lending in response to a sharp rise in non-performing loans.

“We think the economy will struggle in 2024,” it said in a note, forecasting next year’s growth at 6.0%.

The central bank will likely cut rates further next year, with inflation likely to remain within target, Capital Economics said, though it added that the consensus expects no change.

Vietnam’s legislature in November approved government targets for next year of GDP growth of 6.0% to 6.5% and inflation in a range of 4.0% to 4.5%.