ICAEW: Vietnam, a soft 2024, but a bright medium-term outlook

This is expected to further rise to 5% in 2024, with a bright medium-term outlook.

In 2024, overall growth is likely to be subdued by normal standards. Although likely to nudge up to 5% from an estimated 4.7% in 2023, this would still be well below the pre-pandemic trend of 7%.

Despite below-trend growth in 2023 and 2024, Vietnam's miracle growth story probably hasn't ended yet. Vietnam has emerged as a key winner amid the global supply chain reshuffling and its share of global goods exports should increase further over the medium term, spurred by multinationals' China Plus One strategies, driving GDP outperformance relative to the country's ASEAN peers until at least 2030.

Economic momentum has picked up in Q3 2023, but there are concerns about potential headwinds in 2024, finds Oxford Economics in its recent research commissioned by the Institute of Chartered Accountants in England and Wales (ICAEW). Factors weighing down the 2024 forecast include slow global growth led by the United States (US) and China, tourism bright spots losing their shine, and declining private consumption. 

As a result of both external and domestic challenges, Oxford Economics projects Southeast Asia’s economy to grow by 4.3% in 2023 and 4.2% in 2024, below the pre-pandemic average of 5% per year. Singapore's economy enjoyed robust 1.4% quarter-on-quarter growth in Q3, driven by a turnaround in exports and manufacturing activity. The gross domestic product (GDP) growth forecast for 2023 is 0.7%, down from 3.6% in 2022.

Tight monetary policy globally to weigh on exports

Southeast Asia has displayed resilient economic momentum in Q3, with improved trade conditions driving GDP growth to surpass expectations. Export growth in Singapore, Malaysia, and Vietnam expanded from Q2 to Q3. Singapore and Vietnam enjoyed notable turnarounds with both markets having significant footholds in the electronics trades.

However, Southeast Asia exports will likely be weighed down by a prolonged global weakness, particularly from the US and China. While the US will probably avoid a recession, an extended period of poor growth is likely ahead. Other advanced economies are set to be sluggish due to past policy tightening while China’s spending will remain subdued as it faces its own domestic difficulties. Even the prominent tourism sector is losing its lustre, with the rebound in tourist arrivals having stalled for most other Asian economies including Singapore, Malaysia, Indonesia and Vietnam.

Meanwhile, private consumption is moderating due to several factors. First, export profits mostly remain lower than that of 2022, which impacts labour markets and investments, especially in trade-focused countries like Singapore and Malaysia. Past monetary policy tightening is also starting to take its toll on spending power through higher debt service costs. The pandemic drag is starting to show through depleted savings and higher debt levels across households, firms, and governments, which will likely lead to a period of spending restraint and balance sheet repair.

This will be compounded by tightening fiscal policy as 2024 budgets are predicted to target restrained spending. While inflation is likely to resume its decline further in the future, analysts are not expecting rate cuts until Q2 2024.