[Podcast] Ho Chi Minh City Economic Report: Recovery and Challenges – Part 2: Ho Chi Minh City’s economic growth in the first 6 months of 2024

“Ho Chi Minh City Economic Report: Recovery and Challenges”, a scientific research publication published by University of Economics Ho Chi Minh City (UEH) 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, challenge analysis, recovery forecast, as well as proposes some suggested policies towards the Ho Chi Minh City Government. In part 2 of this article, the authors are to analyze the economic growth situation of Ho Chi Minh City in the first half of the year 2024.

GRDP growth rate of Ho Chi Minh City (HCMC) in the first 6 months of 2024 indicating that the economy continues to maintain its momentum of gradual recovery towards its potential level

GRDP in the first 6 months of 2024 of HCMC is estimated to reach 568 trillion VND (according to the comparative prices in 2010), an increase of 6.46% over the same period last year. To be more specific, GRDP in the first quarter of 2024 is estimated to increase by 6.54% over the same period last year. However, it must be noted that the GRDP growth rate of the first quarter of 2023 is rather low compared to that of the potential trend. Therefore, the fact that the GRDP growth rate of the first quarter of 2024 reflects a rebound from a comparable base level (rather low in comparison with GRDP of HCMC in the second quarter of 2024) which is estimated to increase by 6.31% over the same period last year is inherently a rather high base level. The research team estimates that GRDP growth in the first 6 months of 2024 of HCMC has been gradually recovering to its potential trend level. This reflects the total demand for goods and services in HCMC has been continuing its steady recovery but below its potential production level.

Table 1 presents the GRDP growth of HCMC in the first quarter of 2024 which mainly comes from the service, industry and construction sectors. To be more specific, the comparative base levels in the first quarter of 2023 of services, indusstry and construction are rather low, low and very low, respectively. In the second quarter of 2024, the fact that the GRDP growth of HCMC continues to be led by the service and industrial sectors notes that the comparative base level in the second quarter of 2023 for both sectors is rather high. On the other hand, the construction sector in the second quarter of 2024 is estimated to grow only 4.1% although the comparative base level of the construction sector in the second quarter of 2023 is rather low. At the current prices, the service sector and the industry-construction account for 1.04,6% and 21% of GDP, respectively.

The indicators demonstrating the recovery speed of aggregate demand for goods and services in HCMC mainly coming from consumption and export

The recovery in total demand for goods and services in HCMC first comes from growth in consumption. This is indirectly reflected in the growth of total retail sales of goods and consumer service revenue, along with revenue from transportation, warehousing and transportation support services. The total retail sales of goods and consumer service revenue (at the current prices) in the first 6 months of 2024 in HCMC is estimated to reach 558 trillion VND, an increase of 10% compared to that of the same period last year (the corresponding figure for the whole country is 3,098 trillion VND and an increase of 8.6%). To be more specific, retail goods account for 48% and increase by 10.2%, accommodation and food services account for 11.2% and increase by 8.1%, and travel and tourism account for 3.4% and increase by 63.3% whereas other services account for 37.4% and increase by 7.2%. However, if we consider the inflation factor, Table 4 illustrate that the figure of 558 trillion VND is not high compared to that of the total retail sales of goods and consumer service revenue in the first 6 months of the years in the past 2019-2021 period. This proves that consumption in HCMC has been recovering relatively slowly compared to that in the pre-COVID-19 pandemic trend, reflecting people’ precautionary savings mentality in the face of a still risky and uncertain macroeconomic environment. This consumption behavior often appears when people have pessimistic expectations regarding future income streams.

On the other hand, the revenue from transportation, warehousing and transportation support services (at the current prices) in the first 6 months of 2024 in HCMC is estimated to increase by 32.42% compared to that of the same period last year. Taking into account the inflation factor, Table 4 affirms that this has been a rather high number compared to that of the revenue of transportation, warehousing and transportation support services of the first 6 months of the years in the 2019-2023 period.

In addition, the recovery in total demand for goods and services in HCMC comes from growth in exports. The export value at the current prices of HCMC in the first 6 months of 2024 is estimated to reach approximately 20.6 billion USD (equivalent to approximately 524 trillion VND at the current exchange rate), up 3.1% compared to that of the same period last year. To be more specific: The first quarter of 2024 is estimated to reach 11.11 billion USD, an increase of 18% compared to that of the same period last year; The second quarter of 2024 is estimated to reach 9.45 billion USD,10.3% lower compared to that of the same period last year. Table 5 confirms that these numbers are not high compared to that of the export value of the first and second quarters of the years in the 2019-2022 period. This indicates that businesses in HCMC have not completely taken advantage of the advantages coming from the recovery of the global economy, especially HCMC’ two largest export markets: China and America. This may be a slow step in HCMC’s short-term orientation as HCMC is in the phase of transforming its growth model towards high technology and greening. However, HCMC needs to do more detailed research so that HCMC is able to properly assess the current status and the trends of export activities so as to promptly have policies to support businesses.

Various indicators proving that domestic businesses are facing numerous difficulties without any signs of a solid recovery in investment activities

The recovery speed of demand for industrial products in HCMC is reflected indirectly through industrial production activities. The Industrial production index (IIP) of HCMC in the first 6 months of 2024 increased by 5.6% compared to that of the same period last year whereas the corresponding figure for the whole country is 7.7%. To be more specific, the first quarter of 2024 increased by 4.98% while the second quarter of 2024 increased by 6.21%. However, it should be noted that the base level compared to that of the same period in the first quarter of 2024 is rather low. Table 6 indicates that the industrial production index in the first quarter of 2024 and the second quarter of 2024 of HCMC are relatively high increases compared to that of the first quarter and of the second quarter of the years in the 2019-2022 period.

In HCMC region, the investment capital of the whole society (at the current prices) in the first 6 months of 2024 is estimated to increase by 2.6% higher than that of the same period last year. To be more specific, the capital from the non-state sector accounts for 68.6% and increases by 3.8%; the capital of the foreign direct investment sector accounts for 10.8% and decreases by 10.3%. This partly reflects that the investment of domestic enterprises in HCMC has been recovering relatively slowly compared to that of the whole country. On the other hand, the public investment capital in the first 6 months of 2024 has been disbursed rather slowly. Compared to that of the same period of last year, the disbursement of public investment capital in HCMC in the first 6 months of 2024 reaches more than 10.9 trillion VND, 29% lower than that of the same period of last year. This disbursement level only reachs 13.8% of the total assigned capital plan. This slow speed of public investment disbursement partly affects the rather modest growth rate of the construction sector.

Other indicators partly reflecting the investment activities of businesses are as follows: (1) the number of businesses entering and leaving the market; and (2) the number of new FDI projects. In the first 6 months of 2024, the total number of newly established and re-operated businesses is 33,824 – an increase of 11.1% compared to that of the same period last year. Meanwhile, the total number of businesses temporarily suspended and dissolved was 22,462 – an increase of 11% compared to that of the same period last year. Table 7 presents that the number of businesses entering the net market³ in the first 6 months of 2024 in HCMC increased modestly compared to that of the first 6 months of 2023. Meanwhile, the number of new FDI projects recorded in the first 6 months of 2024 was 597, an increase of 16.2% compared to that of the same period of last year. This number continues the steady recovery trend after a deep decline in the first 6 months of 2021 and nearly returned to the figures of the first 6 months of 2019 and 2020.

Table 2 provides a more detailed picture of businesses types in the two groups of newly-established and temporarily-discontinued business. In terms of the newly-established group, the number of single-member limited liability companies accounts for 74.4% of the total number of businesses with the growth rate of 15.7% compared to that of the same period of last year. Meanwhile, the number of joint stock companies and limited liability companies with more than one member only accounts for 7.8% and 17% of the total number of newly established enterprises, respectively, in addition to the negative growth rates of –4,9% and –2,2%, respectively, compared to that of the same period of last year. In contrast, in terms of the group that stopped doing business, the number of joint stock companies and limited liability companies with more than one member accounts for 12.8% and 30.7% of the total number of businesses, respectively, in addition to the growth rates of 23.7% and 15.8%, respectively, compared to that of the same period last year. Meanwhile, single-member limited liability companies account for 54.6% of the total number of businesses ceasing business in addition to the growth rate of 7.7% compared to that of the same period last year. This Table warns that the newly-established businesses are relatively small in scale compared to those businesses which are temporarily out of business.

In the context of world economic growth higher than forecast besides the domestic interest rates falling quite low in the first 6 months of 2024, domestic businesses in HCMC have been illustrating signs of difficulty and had a modest investment growth trend that needs to be monitored further. Three potential causes for this problem are as follows:

The first reason is that market demand has not grown strongly and faces diverse risks. Specifically, as mentioned above, the domestic consumption is recovering slowly while businesses in HCMC have not taken advantage of the opportunities coming from the recovery of the export market yet. This combination with a macroeconomic environment which is carrying numerous risks and uncertainties causes the domestic businesses to delay investing in expanding production and business.

The second reason is that the fact that the bad debt situation tends to increase causes banks to be stricter with lending standards to preserve liquidity so as to prevent events in the system. Small and medium-sized domestic enterprises that do not have many valuable mortgaged assets will be directly affected. Meanwhile, the real estate sector with many valuable mortgaged assets will have easier access to credit, leading to the risk of capital flowing into real estate speculation, instead of production and business activities. According to statistics of the State Bank City Ho Chi Minh Branch, the real estate credit in HCMC, by the end of May 2024, had reached an outstanding debt of nearly 993 trillion VND, accounting for 28% of the total outstanding credit and an increase of 2.78% compared to that of the end of the year, higher than that of the general credit growth rate in the area.

The third reason is that banks have difficulty mobilizing capital while interest rates are low. From the beginning of the second quarter of 2024 until now, banks have continuously adjusted to increase deposit interest rates to mobilize capital so as to meet credit growth needs. In that context, the recent spikes in gold prices reflect a large amount of money flowing into gold speculation activities.

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 #128 .

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