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Vietnam: Recalibrating the Policy Mix to Enhance Economic Recovery
Vietnam's economy is projected to grow 6.2% in 2024, driven by exports and FDI. Macroeconomic policies should support weak household spending and MSMEs.
Vietnam’s economy is set to grow 6.2% in 2024, driven by exports and FDI, despite weak household spending and MSMEs.
Key takeaways
- Vietnam’s economy is projected to grow by 6.2% in 2024, driven by exports and FDI, but household spending and MSMEs remain weak.
- Persistent export demand supports growth, but global economic downturns and financial stability concerns pose risks.
- Enhancing economic resilience requires fiscal support for public investment, monetary policy reforms, and stronger financial regulations.
Economic resilience amid challenges
In 2024, Vietnam’s economy is set to grow robustly by 6.2% due to an upswing in export demand and increased foreign direct investments, as noted by the ASEAN+3 Macroeconomic Research Office (AMRO). Nevertheless, household spending remains subdued, and micro, small, and medium enterprises (MSMEs) are yet to catch up. Compounded by the destruction from Super Typhoon Yagi in the north, these challenges suggest macroeconomic policies should be adjusted to bolster domestic economic activities and protect vulnerable sectors.
Risks and prospects
AMRO’s recent consultation in Vietnam highlighted both growth opportunities and vulnerabilities. Persistent export demand is expected to support growth despite the temporary setbacks from the typhoon. However, risks include potential shocks from global economic downturns, particularly in the U.S., Europe, and China, which could hamper Vietnam’s export recovery. Financial stability concerns prevail as credit risks increase and the real estate sector faces hurdles due to new regulatory implementations and poor credit quality.
Policy directions and future challenges
To enhance economic resilience, Vietnam possesses the fiscal capacity to support public investment and aid vulnerable segments. Improving tax collection and streamlining public investment laws are crucial. A market-based interest rate system and greater exchange rate flexibility are recommended for monetary policy reforms.
Strengthening financial regulations, particularly in real estate, and boosting commercial banking soundness are key. Attention to infrastructure, education, and cyber security, coupled with strong climate change policy coordination, will be vital as Vietnam navigates rapid growth and an aging population.
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