Expert Dinh The Hien at the sharing session. Source: Screenshot
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Export recovery evident in Q1/2024
During the Vietstock LIVE program themed “Deciphering Q1/2024 Business Results and Vietnam’s Economic Outlook” held on the afternoon of April 24th, Mr. Dinh The Hien – Director of the Institute of Informatics and Applied Economics Research – Chairman of the Board of Representatives of Manulife Investment Fund, Member of the Board of Directors and strategic advisor to a number of companies in Ho Chi Minh City, said that Vietnam’s GDP situation in the first quarter continued to be positive.
Compared to the last 5 years, Q1/2024 has the highest growth rate and almost all experts clearly see that production has recovered. Companies have started to recruit again strongly as orders recover more strongly than in 2023.
In Q1/2024, the industrial sector still had an impressive growth rate, recording 6.28%. The trade and service sector grew by 6.12%, showing signs of recovery but still showing weakness. The agriculture sector is still facing difficulties, especially the fisheries sector, which continues to struggle.
In addition, CPI in February increased sharply but in March, it was contained. Overall, CPI in the first quarter was at 3.77%, higher than in the same period last year, raising concerns about inflation. At the same time, the exchange rate has also increased quite strongly, and so far, it has increased by more than 5%. This could be a point for the Government to pay attention to the issue of money supply to stimulate the economy and control inflation.
In 2021, despite the COVID-19 pandemic and having to isolate, Vietnam’s economy still achieved good results due to strong exports. However, in 2023, the export situation is again very difficult, causing difficulties for businesses. A bright spot in Q1/2024 is that exports have recovered significantly and increased by 17%, leading to a trade surplus of 8 billion USD.
“That is a bright spot showing a very good prospect for business production as well as the economy. And we will see even better results in the second quarter of 2024”, Mr. Hien expects.
In terms of budget revenue and expenditure, the first quarter was still good, bringing in 540,000 billion VND while spending about 400,000 billion VND. In the following quarters, the Government still has plenty of room to continue supplying money, especially for infrastructure investment.
Overall, all sources of investment capital increased, but the most impressive increase was in the FDI sector. According to statistics, the direct disbursement from this sector was about 4.6 billion USD, the highest increase in the past 5 years, demonstrating consistency when Vietnam is still a destination for attracting direct investment. This can be said to be an important driving force for 2024 because this level of disbursement will lead to production, employment, and domestic consumption recovering very well.
Optimistic about consumer spending from Q3
However, according to Mr. Hien, investors should not be too optimistic because this year’s cash flow is still difficult, and this has been predicted in advance. The cash flow here includes cash flow from business production, consumption, and investment, including real estate and securities.
In 2023 and early 2024, the cash flow of production, business, and consumption is being severely affected by the “blocked” investment cash flow. Therefore, 2023 is a year of double difficulty, both for businesses and individual investors, as well as the majority of people.
International financial organizations such as ADB and Fitch still estimate Vietnam’s GDP growth this year at over 6%, and drivers such as public investment, exports, and FDI will become the impetus for generating cash flow for production, business, and consumption.
“We are very optimistic about this cash flow, and it will not be stagnant like in 2023”, Mr. Hien said, expecting that credit growth in April will be better, although the first months of the year caused concerns.
With production and business recovering, leading to consumption, banks have begun to lend money to businesses. The first step is to directly lend to businesses that export, increase employment, increase income, and then to the people’s sector and increase consumption. This consumer cash flow is continuing to strengthen and is expected to achieve significant results by the third quarter of this year.
Investment cash flow in the stock market will return at the end of Q2
Besides the advantages of cash flow in business production, investment cash flow still faces many difficulties. Real estate businesses must handle the problem of maturing bonds, which is about 382,000 billion VND in 2024. This is a huge amount. However, according to Mr. Hien, this will not affect the financial system, banks, or the cash flow of business production, but will only hinder the investment cash flow in the real estate sector.
Another point is that investment cash flow will face difficulties due to bad debts of banks, which have increased to the highest level in the past 5 years. This is an accumulation over many years, and it has not increased naturally because since 2020, banks have continued to pour capital into real estate through many forms. And when the market faces difficulties, bad debts appear.
This happened in the period 2010-2012 and is now continuing to occur on a larger scale. The Government as well as the State Bank of Vietnam (SBV) are focusing on handling this issue and it has been controlled. However, it is controlled to keep the banking system safe and cannot help the cash flow be released strongly for investment.
At the end of 2023, financial reports of real estate businesses showed that revenue on inventory all decreased to the lowest level in the past 5 years, causing real estate businesses to face difficulties in capital and hindering investment cash flow.
In addition, the Government’s money supply has also become more cautious. When supplying money to develop the economy, it is possible to accept inflation to some extent, but the Government will prioritize macroeconomic stability, which means not trading economic growth for inflation.
Experts believe that cash flow will continue to be difficult in the second quarter, including cash flow from production and business. That means if you are a business, you will still feel that the ability to borrow working capital to produce goods and materials is limited. Or if you are a small trader, or a citizen, access to credit is still difficult. And businesses and people doing business with each other still feel that money is still “stuck” somewhere.
However, Mr. Hien predicted that this situation will gradually improve in the third and fourth quarters. Business cash flow will become more comfortable, traders will feel more comfortable, and workers will begin to see their incomes gradually recover. Meanwhile, investment cash flow cannot meet the expectations of real estate investors. However, investment cash flow in the stock market will be positive in the end of Q2/2024.
“Especially around May and June, we will see a cash flow returning to the stock market, demonstrating the reactions to the economy one step earlier from these investors”, the doctor assessed.
