VINACHEM

Vietnamese economy is showing mixed signs of recovery, with growth forecast to reach 5.5% in 2024 and gradually rise to 6.0% by 2025, according to the latest World Bank Taking Stock bi-annual economic update released on March 23.

After experiencing a slowdown in 2023, the economy is showing mixed signs of recovery in early 2024. While exports are recovering, consumption and private domestic investment are growing more gradually. Real exports are expected to grow by 3.5% in 2024, reflecting gradual improvement in global demand.

In addition, a turnaround in the real estate sector is anticipated later this year and next, bolstering domestic demand as investors and consumers regain confidence. Real total investment and private consumption are projected to increase by 5.5% and 5% in 2024, respectively.

The report underscores the importance of sustained fiscal policy support to reinforce the recovery. It recommends expediting infrastructure investment projects financed by public resources. This would help further stimulate the economy, with an additional potential 0.1 percentage point of GDP growth for every 1 percentage point increase in public investment as a share of GDP.

In the meantime, on monetary policy, the space for additional interest rate cuts is limited due to the interest rate differential between domestic and international markets.

According to experts, continued weak revenue collection and increased spending, including the planned salary increases for civil servants and accelerated investment public investment, are expected to widen the fiscal deficit to 1.6% of GDP in 2024, before narrowing to 1.1% in 2025, in line with the country’s Fiscal Strategy for 2021-2030.

Ensuring the stability of the financial sector remains paramount, with a focus on managing potential risks associated with increasing bad debts, including due to declining asset values in the real estate market.

Capital buffers of commercial banks are relatively thin, and the real estate market’s downturn could further depress their capital.

“Investing in public infrastructure projects goes beyond immediate economic stimulus,” said World Bank East Asia and Pacific Practice Manager for Macroeconomics, Trade, and Investment Sebastian Eckardt.

“Efforts to enhance public investment management will also address critical infrastructure gaps in energy, transportation, and logistics, which are fundamental for Vietnam's long-term economic growth”, he added.

The report’s special section offers recommendations for supporting innovative startups to contribute to Vietnam's productivity growth. It highlights the need for a more enabling environment, as key structural barriers persist across sectors.

These include regulatory barriers, growing skills shortages, a low rate of technology absorption, and challenges in accessing early-stage finance.

Think tanks pointed out that to nurture Vietnam’s innovative firms, Vietnam could revamp key ecosystem support program towards building a pipeline of investment-ready firms. This includes improving support mechanisms, collaborating with private fund managers to establish local early-stage funds, and enhancing the capabilities of ecosystem stakeholders like incubators and accelerators.

In addition, the country is advised to streamline regulations with fast track reforms addressing regulatory barriers to domestic investment funds and simplifying procedures for facilitating investments from outside into Vietnam and vice versa, particularly for investments in innovative startups.

Economists also emphasized the need to enhance contributions of academia and public research by empowering universities and public research institutions to contribute to startups, through revitalized incubators, accelerators, entrepreneurship training centers.

The public research sector can play a larger role by modernizing the intellectual property and technology transfer framework, rewarding research efforts with commercialization potential, and building the capacity of universities and research institutions to effectively transfer technology to startups, they stressed.   – Source: VOV –