[Podcast] Ho Chi Minh City Economic Report: Recovery and Challenges – Part 1: Overview of the world and of Vietnam economy in the first half of 2024

“Ho Chi Minh City Economic Report: Recovery and Challenges”, a scientific research publication published by Ho Chi Minh City University of Economics and Ho Chi Minh City Statistics Department coordinating to provide a comprehensive view of Ho Chi Minh City’s economy in the first 6 months of 2024, presents the results achieved, the analysis of challenges, the forecast of recovery, as well as proposes some suggested policies to the City government. In part 1 of this article, the readers are to learn the world and Vietnam’s economic overview in the first half of 2024.

Research overview

In the first 6 months of 2024, the world economy continues to recover and to achieve relatively high growth compared to that of forecast, especially the two largest export markets of Vietnam in general and Ho Chi Minh City in particular: America and China. 

In this favorable context, Vietnam achieved relatively high GDP growth in the first 6 months of 2024 compared to that of the same period last year, reflecting a steady recovery of aggregate demand for goods and services. Export is the factor contributing to the recovery of aggregate demand whereas consumption and investment (especially investment by domestic consumer businesses) have not completely recovered strongly compared to the time before the COVID-19 pandemics.

Ho Chi Minh City also achieved relatively high GRDP growth in the first 6 months of 2024 compared to that of the same period last year. To be more specific, the service sector is experiencing the highest and most stable growth, followed by industry whereas the construction sector is growing rather modestly. 

In the first 6 months of 2024, the recovery rate of total demand for goods and services in Ho Chi Minh City comes from consumption, followed by export. To be more specific, consumption in Ho Chi Minh City tends to grow slightly faster than that of the whole country while exports grow relatively lower than that of the whole country. 

In Ho Chi Minh City, many indicators indicate that domestic businesses are facing diverse difficulties; yet, there has been no signs of a solid recovery in investment activities in the first 6 months of 2024. 

To achieve the growth target in 2024, Ho Chi Minh City needs to be more drastic with solutions to boost aggregate demand in the last 6 months of 2024, especially, specific action programs to remove difficulties for domestic businesses and to promote public investment disbursement.

Overview of the world economy and Vietnam economy

*World economy 

By the end of the first 6 months of 2024, the world economy is being in the process of recovering after a period of being heavily affected by the COVID-19 pandemic. However, the recovery of the world economy has not been as fast and strong as many optimistic observers had expected and will likely not return to the state before the COVID-19 pandemic. Instead, the world economy is gradually transforming and seeking to adapt to increasingly profound changes: Geopolitical tensions and fragmentation of international markets, conflicts Prolonged armed conflicts (especially Russia-Ukraine and the Middle East region), relatively high interest rates, the slowdown of the Chinese economy and increasing risks of natural disasters and epidemics.

In the World Economic Outlook publication in April 2024, the International Monetary Fund raised the growth outlook for the world economy to 3.2% in 2024 (up from the forecast). reported 2.9% in October 2023). However, this figure is being far from the growth rate in the two decades before the COVID-19 pandemic (the average annual growth rate of the world economy during this period was approximately 3.8%). Similarly, other international organizations raised their forecasts for the world economic outlook in 2024. For example, in the publication of Global Economic Prospects in June 2024, the World Bank raised the growth outlook of the world economy to 2.6% in 2024 (up from the forecast of 2.4% in January 2024). In the publication of World Economic Situation and Prospects in May 2024, the United Nations raised the growth outlook for the world economy to 2.7% in 2024 (up from the forecast of 2. 4% in January 2024)1. 

In the US, the economy demonstrates better resilience than expected with interest rates maintained by the Federal Reserve (FED) at the highest level in more than two decades. The indicators assert that inflation continues to cool down although the pace is slow and contains many risks. This is the main reason why the FED has not yet presented signs of cutting interest rates in the first 6 months of 2024 as expected by the market and optimistic observers at the beginning of the year2. An interest rate cut, if taking place in the last 6 months of 2024, is unlikely to happen quickly and strongly. The IMF raised the US economic growth forecast for 2024 to 2.7% (higher compared to that of the forecast of 1.5% in October 2023).

Contrary to the situation in the US, major economies in Europe generally have lower growth due to more negative impacts from interest rate increases by the European Central Bank (ECB). However, inflation in Euro Area countries decreased faster and more sustainably than in the United States. This is expected to cause the ECB to proactively cut interest rates earlier than the FED, creating a driving force for economic recovery for member countries in the near future. The IMF lowered the growth forecast for the Euro Area’s largest economy, Germany, to 0.2% in 2024 (lower compared to that of the forecast of 0.9% in October 2023) and lowered the growth forecast for Euro Area down to 0.8% (lower compared to that of the forecast of 1.2% in October 2023).

In Asia, the Chinese economy recorded growth exceeding expectations in the first quarter of 2024 thanks to a series of economic stimulus policies. However, economic indicators demonstrate that the Chinese economy has been facing various difficulties from the real estate market, local public debt and people’s consumer spending. The IMF raised its growth forecast for the Chinese economy to 5% in 2024 (higher compared to that of the forecast of 4.2% in October 2023). On the contrary, the Indian economy continues to maintain high growth momentum thanks to people’s consumer spending and public investment. The IMF raised its growth forecast for the Indian economy to 6.8% in 2024 (higher compared to that of the forecast of 6.3% in October 2023). In the Asian Economic Outlook publication in April 2024, the Southeast Asia region was also forecast by the Asian Development Bank to grow by 4.6% in 2024 (a slight decrease compared to that of the forecast 4.7% in December 2023).

In the short term, global inflation in general continues to cool down, opening up more prospects for central banks to start cutting interest rates. However, data began to present a divergence in the rate of inflation reduction among the world’s major economies. This can lead to a mis-match among the monetary policies of major economies and cause more fluctuations in the foreign exchange market. These fluctuations, along with geopolitical tensions and fragmentation of the global market, the armed conflicts in Russia-Ukraine or the Middle East will continue to cast a shadow on the world economy with numerous risks and uncertainties.

Vietnam’s economy

The recovery of the global economy, especially Vietnam’s two largest export markets (the US and China) has been bringing numerous advantages to Vietnam’s international trade activities in the first 6 months of the year. 2024. Vietnam’s GDP in the first quarter of 2024 and the second quarter of 2024 are estimated to increase by 5.66% and 6.93%, respectively, over the same period last year. Figure 1 presents that these are relatively high growth rates since the COVID-19 Pandemic and the Russia-Ukraine conflict (2020-2024). However, it must be noted that the comparative base level of the first quarter of 2023 and the second quarter of 2023 is rather low. Therefore, this growth rate is not too high compared to that of the average level of the years before the COVID-19 pandemic (2015-2019).

The GDP growth rate in the first quarter of 2024 and of the second quarter of 2024 reflects the recovery trend of aggregate demand for goods and services in the Vietnamese economy. The first factor contributing to this recovery is the pull from the international market. Vietnam’s export turnover in the first 6 months of 2024 is estimated to reach 190.08 billion USD, up 14.5% higher than that of the same period last year. To be more specific, the domestic economic sector accounted for 28.1% of total export turnover and increased by 20.6%; The foreign invested sector (including crude oil) accounted for 71.9% and increased by 12.3%.

Domestic factors listed as consumption and investment also contribute to promoting the recovery of aggregate demand. However, looking at two measures of consumption and investment, final consumption and asset accumulation, classifies that people’s spending needs and business investment have not completely recovered as strongly as expected. Calculated based on comparative prices, final consumption and accumulated assets in the first 6 months of 2024 of Vietnam are estimated to increase by 5.78% and 6.72%, respectively, compared to the first 6 months of 2023, an inherently rather low background level. Figure 2 indicates that these have been high increases since the COVID-19 Pandemic and the Russia-Ukraine conflict (2020-2024) whereas these figures are being low compared to that of the previous years (2015-2019).

Viewers can look deeper into investment capital sources to better understand the investment situation of businesses. The realized social investment capital (at current prices) in the first 6 months of 2024 is estimated to increase by 6.8% over the same period last year, a modest number if considering the price increase factor. To be more specific, state sector capital accounted for 27% and increased by 4.8%; non-state sector accounted for 55.1% and increased by 6.7%; foreign direct investment sector accounted for 17.9% and increased by 10.3%. This reflects that investment by domestic enterprises is recovering rather slowly while foreign direct investment is growing stronger.

The price situation in the first 6 months of 2024 is relatively favorable. Figure 3 presents that Vietnam’s inflation in the first 6 months of 2024, measured by the consumer price index (CPI) compared to that of the same period last year, tends to increase. The average CPI in the first 6 months of 2024 increased by 4.08% over that of the same period last year. To be more specific, this increase largely comes from consumer goods groups with high growth rates of over 4%: 

(1) Food group increased by 15.76%, of which rice prices increased by 20.98% according to export rice prices; 

(2) Education group with an increase of 8.58% (in the 2023-2024 school year, some Provinces and centrally-run cities have increased tuition fees in accordance with the Resolution of the Provincial People’s Council; 

(3) Group of drugs and medical services with an increase of 7.07% due to the price of medical services being adjusted according to Circular No. 22/2023/TT-BYT of the Ministry of Health from November 17, 2023; 

(4) Housing, electricity, water, fuel and construction materials increased by 5.51%, largely due to the electricity and water price index increasing by 9.45% and 10.15%, respectively. 

The fact that the inflation in the first 6 months of 2024 increases, directly affecting people’s daily lives, is an issue that needs to be closely monitored in the coming time. However, it can be recognized that this increase largely comes from two sources: (1) groups of consumer goods and services managed by the state, the price increase is temporary and not continuously repeated; (2) In the food group, the price increase mainly comes from random objective causes listed as war, epidemics or natural disasters.

To evaluate long-term changes properly in the general price level, reflecting changes in aggregate demand for goods and services in relation to the long-term potential supply capacity of the economy, viewers need to look at the core inflation. The core inflation measures change in the general price level after excluding random, temporary changes in the consumer price index. Specifically, core inflation is calculated based on the consumer price index after excluding food groups, food, energy and state-managed goods including medical services and educational services. Figure 3 presents that Vietnam’s core inflation has continuously decreased since January 2023 and remained stable around 2.75% in the first 6 months of 2024. This reflects that consumption and investment are recovering. Recovery is rather slow, the total demand for goods and services is below potential production level; therefore, it has not caused much long-term pressure on consumer prices. In the last 6 months of 2024, the government needs to continue promoting stimulus policies and focusing on public investment disbursement.

Despite the raise in the growth forecast for the global economy in general, international organizations maintain Vietnam’s economic growth forecast. The International Monetary Fund in April 2024 forecast Vietnam’s economic growth at 5.8% in 2024 (equal to that of the forecast in October 2023). The World Bank in June 2024 forecast Vietnam’s economic growth at 5.5% in 2024 (equal to that of the forecast in January 2024). The Asian Development Bank in April 2024 forecast Vietnamss economic growth at 6% in 2024 (equal to that of the forecast in December 2023). This partly reflects the concerns of international organizations that Vietnam is facing difficult problems originating from within the economy.

Please refer to the full research Ho Chi Minh City Economic Report: Recovery and Challenges HERE. 

Author group: Dr. Ho Hoang Anh – University of Economics Ho Chi Minh City (Editor); MSc. Nguyen Van Thang – Ho Chi Minh City Office of Statistics (Co-editor); Le Minh Hung – Ho Chi Minh City Office of Statistics; Dr. Nguyen Thanh Binh, Ho Chi Minh City Office of Statistics; MSc. Vo Duc Hoang Vu – University of Economics Ho Chi Minh City. 

Consultancy board: Prof. Dr. Nguyen Dong Phong – Party Secretary, Chairman of the Council of the University of Economics Ho Chi Minh City; Prof. Dr. Su Dinh Thanh – Director of University of Economics Ho Chi Minh City; MSc. Nguyen Khac Hoang – Director of Ho Chi Minh City Office of Statistics; Prof. Dr. Nguyen Trong Hoai – Editor-in-Chief of Journal of Asian Business and Economic Studies, University of Economics Ho Chi Minh City; Assoc. Prof. Dr. Pham Khanh Nam – Principal of UEH College of Economics, Law and Government. 

This is an article in a series of articles spreading research and applied knowledge from UEH with the message “Research Contribution For All – Research For The Community”, UEH respectfully invites dear readers to look forward to the upcoming UEH Research Newsletter Insights #127 .

News and photos: Author group, UEH Department of Marketing and Communications