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Vietnam was one of the few economies that did not fall into recession after Covid-19 hit its shores and was able to stay in the green with GDP growth halving of its normal rate in 2020. The country reported a 2.6% GDP growth rate last year, but the year 2022 is likely to accelerate Vietnam’s economic recovery on the back of rising exports, rebound in domestic demand and stable foreign direct investment (FDI) inflows.
Fitch Ratings estimates Vietnam’s GDP growth to increase to 7.9% in 2022 and 6.5% in 2023, with exports leading the way, growing 19% in 2021. This figure is higher than the government target of 6-6.5% GDP growth as well as above the World Bank’s January estimate of 5.5% growth in 2022. However, the rating firm estimates that the economy would only fully recover to pre-pandemic levels in 2023.
To aid economic recovery, the State Bank of Vietnam (SBV) plans to maintain low-interest rates, even as the inflation rate was merely at 1.94% in January 2022, much lower than the SBV’s target of 4%. Additionally, the government recently approved a $15.4 bn economic stimulus package for 2022-2023, indicating that it would continue to increase public investment.
Vietnam poised for all-around economic growth in 2022
Considered the key contributors to Vietnam’s economy, exports grew 19.5% to $336.25 bn in 2021, while foreign trade grew 22.6% to $668 bn in 2021. According to Fitch’s latest report, “Vietnam’s export sector should remain a regional outperformer, benefitting from its cost competitiveness, diversion of trade from China and a variety of key trade agreements.”
World Bank says Vietnam’s services sector will gradually rebound as consumer and investor confidence improves, while the manufacturing sector would prosper from consistent demand from the US, the EU, and China.
The nation has been slowly reopening its economy since September to revive manufacturing and exports and has over 73% of its population fully vaccinated.
After 2 years of zero inbound foreign tourists and significantly reduced domestic travel, the tourism and hospitality sector might experience a modest increase in revenues, says Kenneth Atkinson, Founder and Senior Board Advisor at Grant Thornton Vietnam. Revenues from the tourism and hospitality sector, which accounted for more than 10% of GDP prior to Covid, plunged by 70% last year.
Meanwhile, according to Le Hoang Vu, Investment Director at Eastspring Investments, Vietnam’s fast-growing digital economy will continue to lift the economy, underpinned by robust growth in e-commerce, fintech, and education. The country’s digital economy is expanding by double digits, with a total market value of $57 bn predicted in 2025.
“The country’s fast-growing digital economy is likely to help the country become a high-income economy by 2045,” the expert from Eastspring adds. Vu also believes Vietnam’s e-commerce sector will boost economic growth. The sector is expected to generate a higher growth of 25% per annum and have a market value of $35bn by 2025.
As per Marco Martinelli, Director at Turicum Investment Management (TIM), the real estate, financial, and consumer staples sectors will also benefit from the economic recovery, while the materials industry will benefit from government infrastructure expenditure.
Positive outlook for Vietnam’s FDI flows, stock market
The Southeast Asian economy continued to be an attractive destination for foreign investors last year despite a raging pandemic. According to government data, Vietnam’s total registered foreign capital increased by 9.2% y-o-y to $31 bn in 2021. So far in 2022, foreign investors have invested $5 bn in 2022, with around $3 bn allocated towards the processing-manufacturing industry.
Vietnam’s stable and balanced politics encouraged FDI inflows last year. According to Atkinson, “new FDI, expansion of existing FDI and increased mergers and acquisitions (M&A), are all expected to grow in 2022, particularly with the expected opening of the borders by mid-2022 and easier entry and commercial flights from Q1.”
Experts also anticipate Vietnam’s stock market to rise further in 2022, following the 39% increase in USD terms of the VN-Index (VNI) last year. As per the latest TIM report, VN Index stayed attractive compared with peers like Taiwan (28%), Indonesia (10.7%), Thailand (5.8%), China (0.9%), Malaysia (-3%), Philippines (-4.5%) as well as Korea (-4.8%).
On November 25, 2021, the VN Index reached a new high of 1,500.81 points, the highest in its 21-year history. James Estaugh, Head of securities services at HSBC Vietnam, forecasts the VN-Index to reach 1,850 points in 2022 and believes that foreign capital inflows will return to the stock market. Vietnam’s emerging market status is likewise on the horizon, according to the expert.
“It’s about time for foreign investors to position themselves now and be ready for the time when Vietnam is upgraded to emerging market status – a foreseeable prospect in the next few years,” Estaugh adds. The country targets to be upgraded to EM status by index providers such as FTSE and MSCI by 2025.
Additionally, in the first half of 2022, Vietnam will complete the deployment of the KRX trading system, which is provided by South Korea’s exchange operator, the Korea Exchange (KRX). This is also likely to attract new and increased foreign investment into Vietnam.
The new system will be a step closer to international standards, according to Martinelli from TIM, which will improve Vietnam’s stock trading, including market information, market surveillance, clearing & settlement, and depository & registration.
