Michael Kokalari, chief economist at VinaCapital, is confident economic growth will rebound in the second half of the year. (Photo courtesy of the company)In his latest report, he said GDP growth in Vietnam slowedprecipitously in Q1 as consumers in the US and other developed markets cutpurchases.
Manufacturing accounted for a quarter of Vietnam’s GDP, and outputcontracted slightly in Q1 as against 9% growth a year earlier since mostproducts made in the country were exported to the US and other developedcountries.
Vietnam’s international trade accounted for a higher percentage ofits GDP than in any other nation and territory in modern history, excluding HongKong and Singapore, and so weaker demand in the rest of the world weighedfairly heavily on its economy.
“Vietnam’s exports fell 12% year-on-year in Q1, driven by a 20%drop in exports to the US. Meanwhile, inventories at US retailers and otherconsumer-facing firms such as Nike and Lululemon are now contracting, which iswhy we expect FDI factories’ order books to start recovering later this year(inventories’ year-on-year growth looks likely to fall to 0% in H2, whichshould prompt a resumption of order growth for Vietnam).
“Finally, domestic consumption continues to grow at a healthy paceand consumer confidence has remained remarkably resilient despite the sharpslowdown in GDP growth.
“In addition, foreign tourist arrivals skyrocketed to over 60% ofpre-COVID levels in Q1 despite the fact that Chinese tourists have not yetreturned to the country en masse - which is another reason we expect Vietnam’seconomic growth to recover in H2.”
GDP growth slowed from 8% in 2022 to just 3.3% in Q1, promptingthe Government to launch several initiatives to boost growth.
The Ministry of Finance has finalised plans to cut the VAT ratefrom 10% to 8% in H2, equating to a stimulus of around 1.5 billion USD for Vietnam’s450 billion USD economy.
The Government will also allow companies and individuals to deferpayment of various taxes by three to six months.
Last month, the State Bank of Vietnam cut policy rates by50-100bps, including a 50bp reduction in the refinancing rate to 5.5%, and a50bp reduction in the maximum interest rates banks are allowed to pay savingsdeposits of up to 6 months to 5.5%.
The Government also walked back some stricter conditions itintroduced in late 2022 on the issuance of corporate bonds, Kokalari said.
It had directed ministries to address various administrativebottlenecks impeding real estate and infrastructure development.
“The Government has taken a series of initiatives to address thecountry’s slowing growth, the most concrete of which are tax cuts and interestrate cuts, but administrative measures intended to ease bottlenecks impedingreal estate development and infrastructure projects could have an even biggerimpact on growth in 2023 and beyond.
“The fact that stock markets tend to start climbing in advance ofeconomic rebounds, coupled with the fact that the VN-Index is trading at arounda 10-year low valuation, leads us to believe that now could be an ideal timefor investors to selectively purchase Vietnamese stocks.”
Interest rates on short-term deposits in Vietnam had peaked inlate-2022, and the policy rate cut last month would create additional downwardpressure on those rates.
“Consequently, there will be many bank deposits maturing in Q2 andQ3 and savers will essentially face a choice of rolling over their deposits atlower interest rates or plowing that money into the stock market (the vastmajority of time deposits in Vietnam are 3-month and 6-month deposits).”/.
VNA
