Tuesday , February 7 2023

Public spending, FDI, tourism to drive economic growth in 2023: analysts


Public investment, foreign investment and tourism will be drivers of Vietnam’s economic growth this year, according to HSBC and VnDirect Securities Corp.

Vietnam is again likely to achieve among the highest growth rates in Asia, possibly only behind Malaysia, after 8.02% in 2022, HSBC said in a new report. The government has set a target of 6.5%.

Public spending would be among the growth drivers, HSBC said.

VnDirect Securities said public spending picked up right at the beginning of the year when work began on Jan. 1 on the first 12 packages of the second phase of the North-South Expressway at a cost of VND52.28 trillion (US$2.18 billion).

Work on its remaining 13 packages, Belt Road No.3 in HCMC and Belt Road No. 4 in Hanoi are scheduled to begin in the first half of the year.

VnDirect Securities expects public spending to increase by 20-25% this year. “We see bright prospects for infrastructure development since the stone and sand shortages and high prices of construction materials have almost been resolved.”

Foreign direct investment also seems rosy. HSBC said Vietnam continues to be an attractive destination for foreign investors, and FDI would partly compensate for the current difficulties related to foreign trade.

Major companies like Samsung and LG are expanding production in Vietnam, as is a supplier of Apple.

Disbursement of foreign direct investment (FDI) in Vietnam in 2022 is estimated at nearly $22.4 billion, up 13.5% year-on-year, making it the highest amount in the past five years.

High hopes are also being placed on tourism this year. As 2023 began Vietnam, which has a target of eight million foreign tourists for the year, welcomed large numbers of them, a sight not seen since the Covid pandemic started two years ago.

China’s reopening on January 8 is likely to provide the necessary push to Vietnam’s tourism, HSBC said. Like Thailand, Vietnam’s largest source of tourists is Chinese, who accounted for some 30 percent of all visitors before the pandemic.

There were 3.6 million foreign tourists last year, or just 70% of its target. But revenues from tourism exceeded the target by 23% thanks to a domestic tourism boom, according to the General Statistics Office.

In its latest report, HSBC maintained the 2023 economic growth forecast at 5.8%.

Smart Invest Securities Company (AAS) has suggested three possible scenarios of 7.3%, 6.9% and 6.2% growth.

Both HSBC and AAS believe the biggest threats to growth are the growing trade difficulties and inflation.

Trade has decelerated over the past few months and the outlook is uncertain this year with growth in exports to major trading partners forecast to slow down, HSBC said.

My Thuan 2 Bridge between the two Mekong Delta provinces of Tien Giang and Vinh Long, whose construction began on January 1, 2023. Photo by VnExpress/Huy Phong

My Thuan 2 Bridge between the two Mekong Delta provinces of Tien Giang and Vinh Long, whose construction began on January 1, 2023. Photo by VnExpress/Huy Phong

AAS forecast export growth of around 9.3% compared to 14% last year. The reopening of the Chinese market will boost Vietnam’s exports, but China accounts for less than 20% of them and so will be unable to offset the decreases in shipments to the EU and the U.S.

According to HSBC, it is necessary to closely watch for signs of stronger inflationary pressure, especially on basic commodities.

For a third consecutive month inflation exceeded 4% last month. The bank forecast 4% inflation this year.
AAS said inflation is likely to be 3.8-4%, and the government should keep an eye on exchange and interest rates.

“The pressure on these will last until the end of the second quarter when the U.S. moves to a more neutral and less hawkish direction than now.”

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