Vietnam’s economy expected to grow beyond expectations: foreign funds

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Foreign investment funds all have positive forecasts about the prospects of Vietnam’s economic recovery and stable growth of foreign direct investment (FDI) inflows in 2022.

Many foreign investment funds predict that Vietnam will achieve GDP growth of about 7.5% in 2022 or even higher thanks to the expansion of domestic consumption, construction activities, and international tourism, as well as thanks to the Government’s financial stimulus package worth USD 15 billion.

The explosive re-opening of the domestic economy will be the biggest driver of economic growth this year. Accounting for about a third of Vietnam’s economy, domestic consumption suffered a severe decline last year. The stimulus package including value-added tax reduction from 10% to 8% promises to boost domestic consumption.

With a positive outlook, Michael Kokalari, Chief Economist of VinaCapital, expects that Vietnam’s household consumption will recover from a decline of 6% in 2021 to an increase of 5% in 2022. In addition, domestic consumption will be boosted by the recovery of tourism, which accounted for about 8% of GDP before the pandemic.

Recent surveys in the US and some other countries indicate that the demand for tourism to Vietnam is increasing sharply. Therefore, many organizations forecast that the partial recovery of international tourism will boost Vietnam’s GDP growth by at least 3% this year and further in 2023 when Chinese tourists return to the Vietnamese market.

In addition, more than one-third of the stimulus package will be poured into infrastructure development and the fact that the Government has been more active in investment since late 2022 will become a prerequisite for infrastructure development.

Vietnam continues to be the destination of FDI inflows

The manufacturing sector accounts for more than 20% of GDP and plays an important role in supporting Vietnam’s economy during the pandemic. It is forecast that this sector may contribute to the economy less this year.

However, Vietnam’s Purchasing Managers’ Index (PMI) surged in January, thanks to the fastest increase in orders from foreign customers in the past four years. FDI companies also increased imports of materials to fulfill orders. Therefore, the manufacturing industry is likely to grow stronger than expected this year.

The long-term growth outlook for the manufacturing sector remains strong and continues to be supported by FDI inflows. In fact, Vietnam was still the destination of foreign capital during the two years of the pandemic.

The US Department of Finance and the State Bank of Vietnam have reached an agreement that essentially eliminates the risk that the US will impose tariffs on Vietnamese exports to this market. This, together with Vietnam’s rapid vaccination campaign, is likely to attract stronger FDI inflows in the near future.

In addition, LEGO Group (Denmark) will build the world’s first carbon-neutral factory in Vietnam. This investment will contribute to affirm Vietnam’s ESG (environmental, social, political) values and attract foreign manufacturers who are prioritizing sustainable development.

Along with positive information about the economy, foreign investors are not too worried about inflation. Although this rate is skyrocketing in many countries around the world, including the US, at over 7%, high inflation has not been recorded in most developing countries in Asia, including Vietnam. “This is a very positive sign,” said Michael Kokalari.

Dau Tu

The rebound in domestic consumption demand and strong export growth will be the driving force for Vietnam’s economic growth in 2022. Another important driver is the recovery of the service and tourism sectors.

In 2022, the driving force for Vietnam’s economic growth will still be import and export, attracting foreign direct investment (FDI) and public investment. Among these factors, public investment is the most important.

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