Recently, The Banker (UK) magazine wrote about the growth prospects of Vietnam in 2024 as “the number of foreign companies establishing production bases in Vietnam increases and the number of tourists continues to rise”.
Vietnam witnessed a 5.1% growth in gross domestic product in 2023 and is projected to increase to 6-6.5% in 2024, “making Vietnam one of the fastest growing environments in Southeast Asia,” according to The Banker.
This growth will be driven by factors across various economic sectors. Khanh Vu, CEO of VinaCapital Fund Management, said, “The recovery in GDP growth will be fueled by exports and manufacturing, increasing tourism, and modest domestic consumption and consumer sentiment. The public sector wage hike starting in the middle of the year is a reason why domestic spending will be stronger in 2024 than in 2023.”
The Banker also noted that “economic growth is also supported by favorable interest rate conditions.” In 2023, the State Bank of Vietnam cut interest rates by 150 basis points to 4.5%. This impacted bank deposit interest rates, with 12-month term deposit rates falling from 7-8% at the beginning of 2023 to around 4-5% a year later.
“What’s encouraging is that companies are currently borrowing to increase working capital and capital expenditure,” said Khanh Vu. “A year ago, they borrowed at interest rates of 9-11%, but now some can borrow at interest rates of 5-7%. Deposit rates are decreasing faster than lending rates, so lending rates may need to decrease further.”
Helmi Arman, an economist at Citi Vietnam, said, “After freezing at the beginning of 2023, real estate activities showed signs of recovery in the second half of the year. The government is pushing structural reform to lay a foundation for a more sustainable real estate recovery.”
For international investors, Vietnam’s manufacturing sector remains the most attractive, especially the supply chains of smartphones and consumer electronics. For domestic investors, the export of textiles, footwear, and furniture is receiving the most attention.
The trend of shifting production activities out of China has brought benefits to Vietnam. In November 2023, Apple announced it would increase investment through supplier Luxshare Precision Industry. The $504 million investment allows Luxshare to build a new facility and enables Apple to relocate more production activities out of China.
Dutch chip manufacturers have also announced plans to move production activities from China to Vietnam, with BE Semiconductor Industries receiving approval for a $5 million investment to lease factory space.
The US is considering a market economy status for Vietnam
The strength of the manufacturing sector is having a positive impact on exports. Khanh Vu said, “Vietnam’s exports turned from declining for most of 2023 to growth starting in September 2023, accelerating from insignificant growth in September to around 10% growth compared to the same period last year in December before Christmas.”
Two weeks ago, US Ambassador to Vietnam Marc E. Knapper said the US government is considering recognizing “Vietnam’s market economy” status.
“This is something our Department of Commerce (DoC) is working on,” Knapper said. “The deadline for completing this is 270 days, starting in October 2023. The US government is committed to carrying out a fair and transparent process in accordance with international rules.”
“We expect the DoC to continue its efforts in doing this. And we want to continue to cooperate with Vietnam to deepen and enhance our countries’ trade and investment relationship,” the US Ambassador to Vietnam said.
The review process also includes a public comment period before a decision is made. The US hopes the process can be completed by around June this year.
