“Vietnam’s economy showed robust recovery in the first half of 2024 and continues to maintain momentum despite global uncertainties,” said ADB Country Director for Vietnam Shantanu Chakraborty at the press briefing in Hanoi. “This steady recovery has been driven by improving industrial production and a strong rebound in trade.”
According to the financial institution, the industrial sector continues to be a primary driver of growth, with external demand for major electronics fueling production. The country’s recovery has also been supported by a rebound in the services sector and stable agricultural output.
However, domestic demand remains sluggish, and subdued global economic prospects add uncertainty, said the report.
The ADB also projected Vietnam’s inflation to remain moderate at 4.0% for 2024 and 2025, although geopolitical tensions, including the Middle East and Russia-Ukraine conflicts, could impact oil prices and potentially boost inflation.
Factors such as wage increases and government-controlled price adjustments are expected to drive inflation up. However, the US Federal Reserve’s decision to cut basic interest rates by 0.5% will help alleviate some pressure on inflation. By the end of August, the Consumer Price Index had risen by 3.5% compared to the same period last year.
“The average inflation rate in the first eight months of the year is 4%, higher than the 3.1% recorded in the same period last year. Inflation is expected to decrease in the second half of 2024, despite the implementation of the minimum wage increase in July,” said Nguyen Ba Hung, Chief Economist at ADB.
The report highlighted several downside risks that could slow the country’s growth momentum. External demand in major economies will remain weak, while geopolitical tensions and uncertainties related to the United States election in November could lead to trade fragmentation, adversely affecting exports, manufacturing activity, and employment.
Raising domestic demand will require stronger fiscal stimulus measures such as accelerating public investment implementation, while maintaining low interest rates. Coordinated policy measures are essential to economic recovery, given relative price stability and weak demand.
To sustain growth in 2024 and 2025, ensuring macroeconomic stability with a more balanced mix of monetary and fiscal policies is crucial, alongside comprehensive state management reforms. Weaker-than-expected external demand necessitates ongoing policy measures to stimulate business activity and boost domestic demand.
Vietnam’s monetary policy will continue to aim for both price stability and growth, despite limited policy space. However, the heightened risk of nonperforming loans due to continued regulatory relaxation on loan extensions limits the potential for further monetary easing. Any additional loosening of monetary policy should be closely coordinated with an expansionary fiscal policy, along with accelerating institutional reforms to support the economy.
