Vietnam’s economy is expected to strengthen to 6 per cent growth this year from 5.1 per cent last year on the back of improving external demand, a pickup in domestic demand and robust foreign direct investment (FDI) inflows, according to the ASEAN+3 Macroeconomic Research Office (AMRO).

However, the recovery is facing a drag from the financial distress in the housing market. The policy mix should therefore be recalibrated to support growth while preserving financial stability, according to AMRO’s 2023 Annual Consultation Report on Vietnam.

AMRO is an international organisation set up to contribute toward securing macroeconomic and financial resilience and stability of the ASEAN+3 region, comprising 10 members of the Association of Southeast Asian Nations (ASEAN) and China, Hong Kong, Japan and South Korea.

After weakening in the first half of 2023, the Vietnamese economy gathered momentum in the second half of the year.

External demand is projected to increase, attributed to stronger US appetite for retail goods, the recovery of the global semiconductor market and a rise in economic activities in the EU. Furthermore, an upsurge in tourist arrivals is expected to bolster consumption, the AMRO report noted.

Inflationary pressure is expected to remain under control, owing to softening domestic demand, declining oil prices and sufficient domestic food production, it said.

Consumer price inflation is expected to increase to 3.6 per cent in 2024. Continued strong FDI inflows, a moderate export recovery, and an improvement of tourist arrivals will continue to support the balance of payments, contributing to a further accumulation of foreign reserves, the report said.

Risks to the growth outlook are tilted toward the downside. Key downside risks stem from a recession in the European Union (EU) or the United States, a slower-than-expected economic recovery in China and the prolonged sluggishness in Vietnam’s housing market.

Risks in the financial sector primarily arise from the deterioration of asset quality.

From a longer-term perspective, Vietnam’s growth potential faces a confluence of structural challenges, including the slow development of a manufacturing ecosystem, a shortage of skilled labour and rapid population aging, it added.

Fibre2Fashion News Desk (DS)

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