In January of this year, VN Express published the results of a survey it had co-conducted with the Private Economic Development Research Board–dubbed Division IV–that found almost 73 percent of businesses in Vietnam intended to scale-down, temporarily suspend operations, or shut-up shop altogether in 2024.

This was troubling news but not surprising. Vietnam’s economy had been struggling for the better part of 2023 as demand for its manufactured goods fell, the US dollar grew stronger, and capital became increasingly scarce.

That said, six months later–just days ago–Vietnam’s General Office of Statistics released GDP data that told a very different story. Specifically, it found that GDP growth for Vietnam for the second quarter of this year had hit a phenomenal 6.83 percent, bringing the average growth rate for the year so far to 6.42 percent, a sizable improvement over 2023.

But that’s not to say the challenges Vietnam was facing last year are gone. On the contrary, some may even have gotten worse.

Take access to capital, for example.

Last year, credit growth was sluggish for most of the year until a anomalous spike in the last two months of the year driven by Vietnam’s banks aggressively marketing credit to domestic consumers. So far this year, however, credit growth has moved at the same sluggish momentum as last year–at the end of June 2023 credit growth was sitting at 4.73 percent, as of the 24th of June this year credit growth was just 4.45 percent  

Furthermore, bond issuances are down considerably. In the first three months of 2023, Vietnam recorded US$41 billion worth of bond issuances. This year, however, it recorded just US$10 billion over the same period, a fall of 36.7 percent.

But it’s not just bond issuances that are down; retail sales have fallen, too.

Over the last six months of last year, retail sales averaged US$21 billion a month. However, over the first five months of this year, retail sales averaged just US$20.27 billion a month.  This was reflected in industries and companies across the board–car sales were down 7 percent year on year at the end of May; beer consumption has been so low that Heineken reportedly had to close a factory; and local airlines recorded a fall in domestic passengers of 18 percent in the first quarter of the year. 

But that’s not to say that money has evaporated. On the contrary, what looks to have happened is that Vietnamese consumers are rethinking what they do with their excess income. Specifically, investing and saving look to have become a new norm with gold and US dollar prices up and savings rates and the VN-Index headed up toward all-time highs.

That said, on the latter, it’s important to note that foreign investors have been going against the grain and divesting from Vietnam’s stock market to the tune of an average of US$11.3 million per trading day, for a total of US$2.08 billion so far this year.

And this goes to the overarching reality of Vietnam’s economic situation in that the economy sometimes moves in two directions and at two different speeds: domestic and foreign, and whereas the foreign part of the economy is going gangbusters the local economy is moving much more slowly.

For example, by the end of May Vietnam’s exports were up by 14.9 percent but the bulk of that growth came from foreign-invested enterprises. In fact, 13.1 percent was attributed to these foreign firms leaving local firms to account for just 1.8 percent.

There was also a significant gap between the size of new investments in Vietnam.

In the first six months of the year, local firms registered capital to the tune of US$29.2 billion across 80,482 new enterprises, roughly US$363,307 per project, according to data from the Ministry of Planning and Investment. Conversely, their foreign counterparts registered US$15.2 billion in new capital across 1,538 new projects or about US$9.9 million per project. The point being that foreign firms are building bigger, better-financed operations, which often means a greater chance of success.

And this, at least in part, has to be to do with their access to capital. Specifically, in that foreign firms have access to foreign capital markets where as Vietnamese firms are largely limited to local banks and bonds from which capital generally comes in the form of Vietnamese dong.

The dong, however, has significantly devalued since the start of this year putting significant pressure on local firms that rely on imported raw materials denominated in US dollars.

More to the point, the State Bank has been burning through its US dollar reserves trying to keep the dong from devaluing further with said reserves, by some estimates, slipping below the IMF’s recommended three months’ worth of imports. That’s not to mention the volume of treasury bills that have been issued to try to suck up excess dong liquidity which have cost the central bank roughly US$43.3 million in interest payments.

The point being here, is that whereas at face value GDP growth of 6.8 percent looks great, underlying that growth is a two-speed economy structure disproportionately held up by external parties.

With this in mind, any optimism drawn from these latest GDP figures should be cautious and it should be recognised that not just the huge growth Vietnam has record over the past six months, but the huge numbers it has now been pulling for years, may not be sustainable.

That said, broadly speaking, whether attributed to foreign or local firms, more growth is generally good and a positive sign that after a troublesome 2023 things may finally be turning around. That said, what the last half of the year holds for Vietnam’s economy is still not entirely clear, however, firms and individuals interested in keeping up with the latest developments should make sure to subscribe to the-shiv.