At the start of October, it became clear that Vietnam was coming to terms with the fact that the huge annual growth it had seen before and directly after COVID had come to an end. The writing had been on the wall for some time but it was finally officially acknowledged when a statement on the government’s website appeared that said the 6.5 percent target set at the beginning of the year would be hard to reach. The best Vietnam could hope for, it went on, was 6 percent this year although it could even be as low as 5.
There were a number of factors to blame for this, but Huong Thi Nguyen, the Director of the General Statistics Office (GSO), in an interview with Bao Tin Tuc pinpointed: firms struggling to access loans (FYI: the SBV announced in October that Vietnam’s bad debt ratio almost doubled from January to July), manufacturing input costs being stubbornly high, and export orders being unchrasteristically low, as three of the biggest.
Foreign observers were also towing a similar line.
The ASEAN+3 Macroeconomic Research Office (AMRO), for example, forecast in October that Vietnam’s GDP growth would be just 4.7 percent. (Notably, this was actually an improvement from the 4.4 percent it forecast earlier in the year.)
AMRO’s forecast was also in line with the IMF’s October forecast for Vietnam of 4.7 percent as well, though Standard Chartered was slightly more optimistic, predicting the economy was still track to reach growth of 5 percent. Although, this was still a drop from the 5.4 percent it had predicted previously.
Of note, these relatively small declines, underscored the fact that most international institutions had acknowledged the challenges facing Vietnam’s economy much earlier and had revised their growth forecasts months ago.
It’s in this vein of thought, that EuroCham’s Business Climate Index also found an improvement in business confidence in Vietnam. The index recorded 45.1 points in the third quarter up from 43.5 in the second quarter of the year.
Furthermore, AMRO, in a press release separate from its forecast mentioned earlier, pre-empted the release of its annual consultation with Vietnam offering the key takeaways in advance. It noted that Vietnam’s economic growth in the near term is fragile; Vietnam’s aging population could weigh on medium-to-long-term growth potential; that Vietnam’s bond market could have a problem if corporate bond issuers were unable to roll over their debt; and that fiscal policy support should be targeted at small and medium enterprises and households.
It was monetary policy, however, that was to take priority in Vietnam. Specifically, issuing treasury bills in order to stabilise the value of the dong against the greenback. This had begun quietly toward the end of September with a few hundred million here or there, but by the middle of October, it had reached more than US$8 billion. The State Bank of Vietnam, however, was showing no signs of slowing down or stopping.
What had stopped, however, was Vietnam’s Global Minimum Tax legislation. Stalled in the drafting stage and unfinished, it was announced that it would not be ready in time to pass Vietnam’s National Assembly before the end of the year.
This was not the only legislation delayed either. An increase to the minimum wage was also put on ice, pushed back beyond January 2024. This was due to the ongoing economic downturn, particularly in the manufacturing sector, the National Wage Council announced.
But the bad news didn’t stop there.
As September trade numbers began to come through from the General Department of Customs it became clear that Vietnam’s export woes were far from over. Total trade turnover for the country in the first nine months of the year had reached just US$496.30 billion an 11.2 percent drop over the same period in 2022.
This news was also coming in as the first tranche of t-bills issued back in September were about to expire with the pressure they had relieved from the Vietnamese dong set to return. With few alternatives, the SBV couldn’t really do anything else other than to issue more. It would, however, fail to replace the bulk of its September T-bills with daily issues of as little US$35 million compared to ilots as big as US$410 million expiring.
That said, some observers had moved the goalposts and were calling the SBV’s t-bill intervention a win. Interbank interest rates had hit a four-month high of 2.22 percent and they argued that this was what the SBV had intended as opposed to simply stabilizing the currency–the Vietnamese dong was, and still is, rubbing up against a record five-year low.
But whereas the local news media was mostly preoccupied with the macroeconomic challenges facing Vietnam, a small cohort was giving its attention to Vietnam’s labor market. In particular, there was speculation that potential labour shortages could be a problem in the medium to long term as the workforce aged, although as the-shiv noted at the time, the General Office of Statistics (GSO) has a very low bar for what it considers employed. By developed world methodology it’s likely Vietnam’s unemployment rate, generally, would be quite high.
Where there may be a shortage, however, is among skilled workers with data from the GSO released in October revealing that barely a quarter of Vietnam’s workforce had a degree or formal qualifications.
Public discourse, however, was to take a left turn when, in a brief aside in a market report, VinaCapital floated the idea of Vietnam hosting an Olympic Games. Whereas obvious challenges exist to a sporting event of this magnitude, the financial firm’s comparison of Vietnam’s economic development to that of former host cities China, Korea, and Japan may hold some water. Of note, the next Olympics that Vietnam could bid on would be 2036.
Major sporting events aside, Vietnam rounded out October with promising news out of the United States. The US Department of Commerce had announced that it would review Vietnam’s non-market economy status. Vietnam had been petitioning for this for some time with a redesignation as a market economy not only likely to benefit the country in antidumping and countervailing measures claims but also likely to be seen as a vote of confidence in the fledgling economy and its past and ongoing economy reforms. No date for an expected outcome was provided.
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