Vietnam Q1 GDP expands 5.7%; strong momentum to continue

SINGAPORE (ICIS)–Vietnam’s economy expanded at an annualized pace of 5.7 % in the first quarter of 2024, led by manufacturing and services, with the robust growth expected to continue in line with recovery in external trade.

• GDP growth fastest for Q1 since 2020
• Q1 exports surge 17%, with US remaining Vietnam’s largest market
• 2024 official GDP growth target at 6.0-6.5%

The Q1 GDP growth represents a strong acceleration from the 3.4% pace recorded in the same period of last year, but slower than the 6.7% Q4 2023 expansion, data released by the General Statistics Office (GSO) showed on 29 March.

Vietnam is the fourth-largest economy in southeast Asia after Indonesia, Malaysia and Singapore. It is a net importer of petrochemicals such as polyethylene (PE) and polypropylene (PP).

The country’s domestic production of petrochemicals is concentrated at two sites in the central region – the Nghi Son refinery and petrochemical complex in Thanh Hoa province and the Binh Son complex in Quang Nhai province.

“One key driver for the robust growth outcome in Q1 2024 has been external trade, with both exports and imports’ rising at the fastest pace since 2021, boosted by strong demand for products such electronics and phones,” said Suan Teck Kin, head of research at Singapore-based UOB Global Economics & Markets Research.

“The upswing in semiconductor sales since mid-2023 suggests that [trade] momentum is likely to continue further into the quarters ahead.”

Despite the ongoing Russia-Ukraine conflict and dark clouds of shipping disruptions in the Red Sea, Vietnam’s exports of goods surged by 17.0% year on year to $93.1 billion while imports gained 13.9% to $85 billion.

“Recovering exports and sustained foreign investment inflows and consumption are expected to be key drivers to Vietnam’s growth in 2024,” consulting firm McKinsey & Company said in a recent report.

Further recovery in domestic consumption following the government’s stimulus policies and the uptick in international tourism would support growth, it said.

In January-February 2024, the US remained Vietnam’s largest export market, accounting for a 28% share, followed by China (14%), South Korea (7%), and Japan (6%).

Q1 growth was also driven by contributions from the manufacturing and construction sector which grew by 6.3% year on year, and services which expanded by 6.1%. These sectors accounted for 41.7% and 52.2%, and 6.1%, respectively, of the overall headline growth in Q1, according to the GSO.

Vietnam’s industrial production for the period rose by 6.18% year on year, reversing the 5.9% decline in February.

The improvement was driven by growth across three of the four main sub-indices – electricity and gas production; manufacturing and water supply; and waste management activities.

Inflation pressures in Vietnam have eased, though the central bank is likely to continue to keep a close eye on inflationary pressures.

Q1 consumer price index (CPI) rose by 3.8% year on year from 3.5% in Q4 2023, marking the fourth consecutive quarter that headline inflation has accelerated.

“With Q1 2024 performance coming in within our expectation and setting a positive start for the year, outlook for 2024 remains bright though downside risks are still present, including conflicts between Russia and Ukraine and between Israel and Hamas which could disrupt global trade and energy/commodity markets,” UOB’s Suan said.

“Nonetheless, the recovery in the semiconductor cycle, stable growth in China and the region, and the likely easing of monetary policy by major central banks this year will be supportive of the outlook.”

UOB expects Vietnam’s GDP to grow by 6.0% this year, in line with the country’s official growth target of 6.0-6.5%.

In Vietnam’s political arena, the resignation of President Vo Van Thuong in late March 2024, the second president to resign in as many years, has cast a shadow over political stability in the country, Suan noted.

However, it should be noted that president’s role in Vietnam is largely ceremonial and, therefore, unlikely to affect the country’s broad policy direction, he said.

“Vietnam’s long-standing policy of welcoming investors and businesses is unlikely to be affected as the government sorts out the succession issue,” Suan added.

Focus article by Nurluqman Suratman

Thumbnail image: At the Hai Phong Port, the largest port in the northern Vietnam, on 25 May 2015. (Minh Hoang/EPA/Shutterstock)