Q2-2024: The economic landscape in Q2 continued to improve, with many economic indicators showing higher growth than in Q1. Specifically, the GDP of the manufacturing industry, electricity generation, transportation & logistics, and hospitality & food services sectors all increased by over 10% year-on-year (YoY). As a result, the cumulative GDP for 1H-2024 reached 6.42%YoY, surpassing the government's target and marking the highest level for the same period in the past 5 years.

However, notably, the GDP growth exceeded expectations in the context that credit growth and public investment disbursement lagged significantly behind the plan. Additionally, the real estate market's troubles have not shown any clear breakthrough. In other words, the main drivers for GDP growth in 1H-2024 came from the positive changes in the international business and investment environment upon a, favorable condition to Vietnam. This includes a faster-than-expected recovery in exports due to demand from various markets and an increase in foreign direct investment (FDI) as technology giants race to find and expand production bases.

Outlook for 2H-2024

Vietnam's economy is forecasted to continue its upward trajectory in the second half of the year, driven by several factors.

(i) The number of new export orders for Vietnam is increasing at the fastest rate since March 2022, which will continue to boost the manufacturing sector's strong growth in 2H-2024.

(ii) Positive growth in registered FDI in 1H-2024 provides a foundation for expected disbursement of these funds soon. This will support the growth of the industrial real estate sector and other related fields.

(iii) Growth in manufacturing and the increasing number of newly established businesses will create more jobs. Moreover, the implementation of new wage policies, being effective from July 1, 2024, will increase household income and stimulate domestic consumption.

(iv) Tax and fee reduction/exemption policies have recently been approved to support businesses and citizens. Or Circular No. 06/2024/TT-NHNN on extending the deadline for debt restructuring have been issued. The Government also aims to maintain lending interest rates at a low level. More relaxed conditions for consumer loans (especially for loans under VND100 million) starting from July 1, 2024, will further support to improve consumer purchasing power.

(v) Recent advancements in digital transformation are expected to enhance the business environment and efficiency of enterprises and financial institutions.

However, several risks, both international and domestic, still exists and need close monitoring:

(i) The real estate market's ongoing challenges, including significant debt repayment and liquidity pressures for many real estate companies, persist. Sales and project implementation have no substantial breakthroughs despite a little bit of improvement. Consequently, debt collection remains a major challenge for construction companies.

(ii) The potential for non-performing loans in the banking system remains significant, despite bookkeeping bad debts in 2H-2024 may be partially stretched out thanks to Circular 06/2024/TT-NHNN.

(iii) Exchange rate pressures are likely to continue until the end of Q3, although they may not be as intense as earlier in the year.

(iv) Public investment disbursement has only reached 33.8% of the plan. Therefore, achieving the target of disbursing 95% of planned funds poses a significant challenge for the second half of the year. As a result, it may be challenged to achieve the government's goal of relying on public investment as a cornerstone to boost growth in other economic sectors.

(v) New risks, such as port congestion in Asia (particularly in Singapore) over the past month, could impact the timing of imports and exports for businesses. Rising transport costs could increase business expenses and/or reduce the competitiveness of Vietnam's export products. These issues may also lead to risks of disrupting global supply chains, potentially driving up prices for imported raw materials and indirectly raising domestic prices, increasing inflationary pressures towards the end of the year.