Vietnam’s GDP grew in the fourth quarter of 2023
Vietnam’s GDP grew by 6.72% in the fourth quarter of 2023, continuing a trend of increasing GDP growth rates, starting with the first quarter of 2023 at 3.28%, 4.05% (later revised to 4.14% ) for the following quarter, and 5.33% for the third quarter.
As such, Vietnam finished the year with a combined 5.05% growth for the entire 2023 . The fourth quarter of 2023 exceeded the previous fourth quarters from the last three years, with 5.92% in 2022, 5.22% in 2021, and 2.91% in 2020. Only back in pre-pandemic 2019 was the fourth quarter GDP growth higher than this year’s. Despite showing continued signs of recovery from the pandemic, the growth rate for all of 2023 is down from 8% in 2022 and the performance falls short of Vietnam’s growth target of 6.5% for 2023.
In the fourth quarter, Vietnam’s GDP growth was mostly driven by the industry, construction, and services sectors with growth rates of 7.35% and 7.29% respectively, while the agricultural sector experienced a growth rate of 4.13%.
Vietnam’s slowed growth rate is believed to be due to a lack of overseas demand, affecting Vietnam’s economic performance due to its large exporting industries, as export levels fell by 4.4% for all of 2023 to $355.5. Public investments have also seen a reduction, believed to be derived from an anti-graft campaign, as disbursement of public funds only reached 65% of the government’s 2023 target. At the same time, import levels for all of 2023 decreased by 8.9%, to 327.5 billion USD, resulting in the trade surplus increasing to 28 billion USD compared to last year’s surplus of 12 billion USD. While an increased trade surplus can facilitate economic growth, drastic drops in imports may be an indicator of slowing economic activity in the coming months.
To stimulate the economy amid a lack of international demand for Vietnamese services and goods, new measures include decreasing VAT and boosting domestic consumption through increased credit growth. However, the credit growth rate only achieved 8.2%, far from the target of 14%, as commercial banks continue to be reluctant to provide loans due to a rapid increase in non-performing loans.
Despite Vietnam’s lower-than-expected growth rate, Vietnam continues to perform well compared across both the region and the globe. However, Vietnam’s GDP growth rate’s upward trend is likely to lose momentum if export sectors continue to weaken and banks reduce their loan capacity. In response, the government has reduced its targeted growth rate for 2024 to 6%, though expected growth rates for the first and second quarters are 6.3% and 6.5% respectively.
A Shift Towards Domestic Consumption
Domestic consumption is one of three key drivers of growth in Vietnam, alongside with investment and export, but in the context of reduced investments and exports, the focus has shifted towards domestic consumption to facilitate economic activity.
Domestic consumption is the only one of the three that reached the government targets, as investments were affected by bottlenecks in the judicial system and exports were hindered by reduced global demand.
Several policies have promoted domestic consumption such as the extension of the VAT reduction from 10% to 8%, which was initiated in 2022 and will now run until mid-2024. As a result, retail sales and services increased by 9.6% YOY and have been boosted by rising levels of tourists arriving in Vietnam, as Vietnam welcomed 12.6 million travelers throughout 2023. However, consumers are still wary of the economic situation as 63% of consumers surveyed responded they were cutting unnecessary spending due to rising prices. Continued increases in domestic consumption can be further supported if government policies focus on reducing interest rates, personal income tax and stronger social welfare support.
Vietnam Poised for Upswing in an Improving Global M&A Market
M&A activities in 2023 were relatively sluggish due to rising global inflation and increasingly strict monetary policies in major economies, which saw M&A deals decrease in value on average by 23% by the end of the year compared to the beginning of 2023.
However, the market is set to rebound in 2024 as global macroeconomic conditions stabilize as inflation rates are stabilizing, interest rates decreasing, and a general increase in investor confidence.
Vietnam is poised to take advantage of these developments due to concurrent government efforts aimed to maintain stable inflation levels, a satisfactory GDP growth forecast, and a manageable public debt. Such actions have seen investors remain confident in the stability of the Vietnamese economy.
M&A deals are expected to focus on sectors with long-term stable returns such as medical equipment and agricultural sectors. At the same time, sectors vulnerable during periods of market decline might also attract several investments as sectors such as real estate and construction may offer favorable valuations of targets.
Reduced Coffee Supply, Record Prices
Vietnam’s coffee farmers are enjoying higher prices for their crops as the price per kilogram of green bean coffee reached 2,74-2,78 USD in the Central Highlands in December 2023, up by 13% from the same period the previous year and has reached record prices in Vietnam.
Encouraged by the rising price levels, farmers are withholding their harvest in an attempt to maximize their profits, while coffee exporters are faced with the challenges of fulfilling their export agreements, which resulted in unfulfilled contracts at an estimated volume of 80,000 – 150,000 tons of coffee in 2023.
Vietnam’s coffee inventory is estimated to have dropped by 16.7% YOY, if correct, will be the lowest level in the last 12 years.
Prices are expected to maintain their high levels until April or May when newly harvested Indonesian and Brazilian coffee will enter the global market and is expected to lead to a record year in 2024 with an export revenue of 5 billion USD.
Real Estate Sector Ready to Bounce Back?
The real estate sector continues to suffer from oversaturation, low investor confidence, and an ongoing economic downturn.
When the sector was booming, investors hastily bought or built new assets with incomplete business plans that continue to affect the sector. The reduced activity in the sector began already in the beginning of 2023 and has continued throughout the year. The residential segment appears to be most affected due to scarce supply and limited available capital, while the office- and industry segments appear stable.
The resort real estate segment, part of the larger residential category, is especially challenged by the developments, as sales are at the lowest point in a decade. The segment is having difficulties in attracting investors due to expected returns remaining 1%-3%, and to exacerbate the situation, the resort segment does not have a developed secondary market compared to the general real estate sector.
The difficulties of the sector stem from a mix of legal bottle bottlenecks, difficulties in raising capital from corporate bonds, and general decreased capital access. However, insiders in the sector believed the worst is over and the sector is set to bounce back as new measures have been implemented to streamline the legal framework and increase capital access. The sector is already gaining increasing attention from abroad as a result, especially within the industry and office segments, which are seen as attractive due to their stable returns.
About this report
This report was compiled with contributions from the team of business experts in our Vietnam office.
ARC Consulting, a division of ARC Group, is an advisory firm specialised in supporting western companies operating in Asia. We are on a mission is to bridge between the business ecosystems of Asia and those in Europe and the US. Our services cover market entry and expansion, production and sourcing, cross-border M&A as well as operational improvement and compliance.
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