Vietnam Economic Update Report
Quarter 2, 2023
In this issue:
Vietnam’s GDP expanded 4.14% year-on-year in the second quarter of 2023
Vietnam's GDP rose by 4.14% year-on-year (YoY) in the Q2 of 2023, pointing to the seventh consecutive period of expansion.
Vietnam’s GDP in the second quarter of 2023 grew by 4.14% compared to the same period the previous year. The figure is greater than the first quarter’s 3.28% growth (which was revised down from the original 3.32%). This increase marks the seventh consecutive quarter recording GDP growth. In addition, the GDP growth in this quarter exceeds the expected 3.8% growth. Nevertheless, Vietnam is still coping with challenges from weakening trading. Overall, for the first half of 2023, Vietnam’s GDP increased by 3.72%.
The main contributor to the GDP expansion in Q2 2023 was the service sector, which grew by 6.11%, followed by agriculture, forestry, and fisheries (3.25%), and industry and construction (2.50%).
The service sector’s high growth can largely be explained by an increase in tourism promotion activities and domestic consumption stimulation policies.
During the first half of 2023, Vietnam has seen positive developments in tourism as the number of domestic tourists reached 64 millions, while international visitors reached 5.5 millions, generating 343.1 thousand billion VND (14.51 billion USD) in total. In fact, international tourists has reached 68.75% of the government’s 2023’s target of 8 million tourists thus far. The success is part thanks to Vietnam National Authority of Tourism’s stimulation plan that was implemented in the beginning of 2023. Activities included promoting Vietnam tourism via major medias such as CNN or international events. Recently, a number of proposals has been approved by the National Assembly, including extending e-visas to 90 days (from 30 days) and visa-free stays to 45 days (from 15 days). Additionally, the assembly has also expanded the list of countries eligible for e-visas, aiming to catch up with regional peers such as Thailand and Singapore. These new measures hope to improve conditions for international travelers as well as foreigners who wish to enter Vietnam for market research and investment promotion, especially in cases where multiple visits are required. Moreover, in order to facilitate tourism, Vietnam’s National Authority of Tourism is currently focusing on diversifying tourism products besides the traditional infrastructure. For example, sports tourism is included in their tourism industry vision. It can also help attract high-spending travelers. As a result, Vietnam will likely see a boost from international tourism looking ahead, a much-needed support for its economy.
Additional stimulation policies include a newly approved government plan to reduce value added tax (VAT) to 8% from 10% on goods and services, lasting until the end of 2023. The plan hopes to boost domestic consumption and production. Consumers are the direct beneficiaries of this policy, but for businesses, the VAT reduction will contribute to reducing costs, helping businesses expand production and create more jobs.
Vietnam’s export-import turnover drops in the first half of 2023
Total turnover of imports and exports reached 316.65 billion USD in H1 2023, down 15.2% over the same period the year before.
In the first half of 2023, export reached more than 164.4 billion USD while import reached 152.2 billion USD, down 12.1% and 18.2% (YoY) respectively.
The decrease in export was mainly caused by three key contributors. Firstly, the global demand has been decreasing due to high inflation, high interest rates, and technical recession in some countries, especially among key trading partners such as exports to the US (down 22.6%), South Korea (down 10.2%) and the EU (down 10.1%). Secondly, price of import and export goods has decreased (export price index in 6 months decreased by 0.52%, import price index decreased by 3.85%, compared to the same period 2022). Thirdly, logistics costs remain high, while the green process innovation is slow and inefficient, making some Vietnamese exports goods less competitive than that of other countries.
Noticeably, in exports of agricultural products, fruits and vegetables has seen the highest growth. In the first 6 months of 2023, fruits and vegetables exports are estimated at 2.7 billion USD, up 64.2% over the same period in 2022. The reason for the strong growth is due to China’s reopening, which accounts for nearly 63.5% of Vietnam’s fruits and vegetables export. The reopening has led to mass purchases of fruit and vegetables from Vietnam.
Manufacturers in Vietnam continued to struggle with weak market demand
Vietnam’s Manufacturing Purchasing Managers’ Index (PMI) in June remained below 50 points for the fourth consecutive month.
Although up from 45.3 points in May, the PMI of 46.2 points in June still shows that the manufacturing industry’s growth has not fully recovered yet as it remains below the standard level of 50. This is the fourth consecutive month that Vietnam’s Manufacturing PMI lands below 50 points.
The drop in new orders in May 2023 was the most significant decrease since September 2021. Businesses cited weak demand and deteriorating market conditions as the main cause. Particularly, new export orders fell faster than total new orders when the international market coped with reduced demand. Consequently, the fall in new orders meant that backlogs of work continued to decrease, leading to reductions in workloads, employment levels and purchasing activity. Andrew Harker, chief economist at S&P Global Market Intelligence, said the sharp drop in new orders in May will be the main cause for the manufacturing industry’s prolonged decline, rather than just a temporary decline.
Throughout 2011-2022, Vietnam’s manufacturing industry has always played a central role in leading the country’s economic growth, with an average growth rate of about 8.9% and contributing more than 2% to the economy’s increased value. Even during the COVID-19 pandemic, the manufacturing industry still achieved a growth rate of more than 5.5%, contributing more than 1.3% to the total growth.
It can be inferred from the continuously low PMI that the current business confidence remain low and that the manufacturing industry is facing bleak conditions at the end of the second quarter, with lack of demand as the key challenge. In addition, a power cut problem on the supply side, caused by unusual heat, national power system’s insufficient supply capacity, and sudden increase in load demand, has halted most of the country’s production activities, leading to the decrease in total output.
In order to recover the manufacturing industry for the remainder of 2023, many measures need to be taken to reduce obstacles and create favorable business conditions. Most significantly, stable power sources must be ensured in order to meet enterprises’ and consumers’ production needs, especially during the peak heat seasons that has thus far been facing electricity cut-offs and lower output capacity.
Foreign-owned businesses increase investments in Binh Duong, Vietnam
With excellent infrastructure, steady personnel resources, efforts to modernize administrative processes, and dynamism in investment promotion, Binh Duong proves advantageous in attracting FDI.
At Bau Bang Industrial Park in Binh Duong, Polytex Far Eastern Vietnam Co. Ltd. announced that it had invested over 1.37 billion USD in the province, and would add another 250 million USD the following quarter, in order to become the province’s largest foreign direct investor. Polytex Far Eastern Company is committed to investing in Binh Duong towards green transformation, sustainable development, training high-quality human resources and joining hands with the province in enhancing social responsibility to protect the environment and workers. In the first half of 2023, over 20 countries and territories invested capital into Binh Duong, of which the largest new investment project belonged to Pandora Group (Denmark). The investment capital totaled to more than $163 million, accounting for 16.7% of total registered capital. The Netherlands ranked first in capital contribution to purchase shares, with two projects with a total value of $321.5 million, accounting for 33% of the total registered capital.
Despite difficulties and challenges in the global economy, Binh Duong continues to be one of the leading localities attracting FDI in Vietnam. Firstly, the provincial authorities are highly engaged in improving the business environment in the region, regularly organizing surveys, learning about difficulties, problems and proposals of firms and foreign investors, striving to solve problems immediately. At meetings with businesses, provincial leaders always direct specialized departments and branches to actively coordinate and support businesses and investors to solve their challenges, facilitate more efficient production, and simultaneously deploy new projects quickly and conveniently. The Institute of Policy Administration and Binh Duong are working together for the first time to undertake a synchronous survey of FDI enterprises in the region in order to create an attraction plan as the global minimum tax rate is being implemented.
Secondly, the logistics infrastructure between Ho Chi Minh City and Binh Duong demonstrates impressive capacity. The National Highway 13 in Binh Duong continues to be upgraded to meet development needs. In parallel, the My Phuoc Tan Van road (without toll booths), dedicated to container trucks, has been named the “Silk Road” of Binh Duong. Additionally, there are connecting roads linking industrial zones, service urban areas, and logistics centers that are increasingly being opened. As the roads allow transportation vehicles to move quickly, transportation costs are significantly reduced.
Thirdly, the infrastructure of the industrial zones is also attractive for investors. There are well-developed areas that are able to meet the high infrastructure requirements of investors and constructors. At the same time, there is also a lot of favorable undeveloped land that can be seen as “clean land“, ready for large global enterprises to build manufacturing and business facilities.
According to the Provincial Department of Planning and Investment of Binh Duong, the average scale of FDI capital into Binh Duong is approximately 9.7 million USD per project.
About this report
This report was compiled with contributions from the team of business experts in our Vietnam office.
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