The investment fund VinaCapital expects Vietnam’s GDP growth to rebound to 6.5% next year, driven by a recovery in exports, which will in turn be closely accompanied by a rebound in the local manufacturing sector output.

Chief Economist at VinaCapital Michael Kokalari (Photo: VnEconomy)

Michael Kokalari, Chief Economist at VinaCapital, wrote in his freshly released note that the optimism for a manufacturing-driven recovery of Vietnam’s GDP growth next year stems from an analysis of the cause of the sector’s problem in 2023, which was an over-accumulation of inventories by US retailers and other consumer firms in 2022. Inventories surged by more than 20% year on year in late 2022, because firms over-ordered during the COVID-19 supply-chain disruption of 2021, and because expectations of a post-COVID spending boom did not materialize as retailers and other consumer companies had expected.

Consequently, US firms have been working through this excess inventory throughout 2023 with inventory depletion at the fastest pace in almost ten years; this has been the main factor weighing on Vietnam’s exports and manufacturing output this year. However, a series of economic data indicates that this phenomenon is now coming to an end, which is the basis for the belief that orders and output from factories in Vietnam are now recovering.

Additionally, the expert also mentioned that Vietnam's growth could potentially benefit from an increase in foreign direct investment (FDI) inflows, driven by the elevation of the Vietnam-US diplomatic relations to a comprehensive strategic partnership. The partnership is expected to prompt an enormous inflow of new investment from the US into Vietnam (the US currently only represents around 3% of Vietnam’s FDI inflows).