In an economist’s note titled “Looking ahead at 2023”, Chief Economist Michael Kokalari said the economy is returning to its long-term growth trajectory now that the post-COVID re-opening boom has finished.

He said Vietnam’s GDP growth to slow from 8% last year to 6% this year, weighed down by the slowing demand for “Made in Vietnam” products from consumers in the US and the EU, but supported by the continued resumption of foreign tourist arrivals in Vietnam, especially in light of China’s recent re-opening, and supported by a surge in the Government’s infrastructure spending.

Vietnam’s government aims to increase infrastructure spending from 4%/GDP in 2022 to 7%/GDP in 2023, which would help support the country’s long-term economic growth, Kokalari added.

This new infrastructure is needed to help ensure that FDI inflows continue to flow into Vietnam for years to come, according to the economist.

Regarding domestic consumption, he said, the growth of Vietnam’s middle-class is driving reliable growth in the demand for products and services those consumers desire, which benefits consumer discretionary companies. 

The value of the Vietnam dong depreciated by 3% in 2022 as compared with 7% average depreciation for Vietnam’s regional emerging market (EM) peers last year, and VinaCapital expected the VND to appreciate by 2-3% in 2023. 

“Vietnam’s CPI inflation rate averaged 3% in 2022 versus much higher inflation in most other DM/EM countries in the world, but we expect that figure to tick up to 4% in 2023, largely because China’s re-opening is likely to put some upward pressure on food and energy prices in Vietnam,” according to the economist.

Finally, the consensus expectation is that the VN-Index will increase by over 20% this year, which would imply a normalisation of the stock market’s valuation. 

Global inflation pressures are now abating, which means that the aggressive central bank rate hikes that depressed both developed and emerging market stock markets last year will likely end soon.

VinaCapital expected the Government to take steps to ease the liquidity issues currently impacting Vietnam’s corporate bond market, which would result in a resumption of Vietnamese companies’ ability to refinance their maturing debts.

“In our view, instilling confidence back into the Vietnamese stock market will be a drawn-out process, but the market’s attractive valuation and solid earnings growth prospects probably explain why foreign investors purchased 1.1 billion USD worth of Vietnamese stocks in the last two months of 2022. They were also net buyers of Vietnam’s stock market for full-year 2022, the first time since 2019,” according to the note.

For investment themes and sectors, VinaCapital’s research team continued to favour the domestic consumption, infrastructure and FDI investment themes in 2023 (unchanged from year’s “Looking Ahead at 2022” report) and added lower interest rate beneficiaries and consolidation as two new themes for this year./. VNA