Despite the slowing trade situation, there are factors that keep Vietnam’s economy strong. Tourism will be a key industry in 2023.

Vietnam tourism is proud to continue to affirm its attraction to a large number of international tourists.

The report “Vietnam at a glance: Tourism – a part of salvation” just published by HSBC said that, after reopening in March 2022, Vietnam’s domestic tourism has recovered strongly but International tourism, which accounts for 60% of tourism revenue, has not recovered very well.

Even so, Vietnam has good reasons to expect a stronger recovery, especially after China reopens.

The right time to visit Vietnam

After impressive growth in 2022, where will Vietnam go in 2023? While some challenges, especially trade difficulties, are already evident, Vietnam is still resilient. A major source of growth will come from tourism.

After Vietnam reopened in March 2022, domestic tourism has recovered strongly, helping Vietnam easily surpass the target of 60 million domestic visitors in 2022 and actually reach over 100 million domestic tourists.

In 2022, Vietnam will welcome 3.6 million international tourists, mainly from Korea (26%) and the US (9%).

However, international tourism has only partially recovered, but not completely, with the number of tourists reaching 3.6 million, only 20% of the level of 2019 (Figure 1). That underscores the significant potential for services to continue to grow amid slowing global demand for goods.

In 2023, the government aims to attract 102 million domestic tourists and 8 million international visitors, with tourism revenue expected to increase by more than 30%, although still below 2019 levels. One point to note is that total tourism revenue used to be as high as 10% of GDP in 2019.

The good news is that mainland China, the largest source of tourists for Vietnam before the pandemic (Figure 2), has also recently begun the reopening process, further facilitating the growing tourism industry. strength of Vietnam. Although the recovery process may take place gradually, the impact on the Vietnamese economy will be huge in many ways.

For example, in the past, Chinese tourists on average spent more and stayed longer than most Asian tourists, although lower than European and American tourists (Graph 3) .

With a large proportion of Chinese tourists (30%), Vietnam will probably also be a big beneficiary in the region, just after Thailand, when it receives a “push” from the return of Chinese tourists.

If flight restrictions can be resolved and visa requirements are further eased, HSBC believes the return rate of Chinese tourists will reach 50-80% of pre-pandemic levels (3 to 4.5 million) is a target within reach of Vietnam.

Indeed, the informal labor market, which is very vulnerable to tourism, will receive more support as global tourism normalizes further, but also be mindful of the fading impact of trade difficulties, weakening global sentiment and the fading impact of the post-opening recovery on domestic spending.

Besides China’s reopening, what other possible “pushes” do Vietnam have? First of all, tapping into new markets will be a central issue, with various initiatives such as launching tourism promotion programs to pave the way to emerging markets like India – a country with a growing footprint in Vietnam’s international tourism industry.

In September 2022, VietJet started operating flights between the resort island of Phu Quoc and New Delhi and Mumbai of India. Other routes have also opened to connect major cities of the two countries.

Easier travel also facilitates deeper travel connections: Indian tourists account for 4% of Vietnam’s total visitors in 2022, up from just 1% in 2019.

What can Vietnam do to increase its attractiveness as a tourist destination? Vietnam is considering easing visa policy further. Currently, Vietnam does not exempt visas for major markets including mainland China, the US and Australia, while European countries are exempted from visas, but the stay period is only 15 days.

Obviously, compared to other countries, access to the visa-free regime is still relatively tight in Vietnam. Fortunately, this situation is likely to change.

Officials are considering increasing the visa-free period to 30 days and rolling out electronic visas for citizens from all countries and territories.

Another way to facilitate tourism is not only by improving traditional infrastructure but also by diversifying tourism products. Sports tourism, a tourism segment within the tourism industry vision of the Vietnam National Administration of Tourism, can also help attract high-spending travelers.

The level of development of tourism facilities in general is also very encouraging. According to the Vietnam National Administration of Tourism, the supply of high-end accommodation continues to grow with the number of 4-5 star standard establishments increasing by an average of 12% per year before the pandemic.

After the pandemic, a number of global hotel chains are actively looking to open new facilities in Vietnam, reflecting Vietnam’s attractiveness in other areas than just manufacturing.

The outlook is basically unchanged

This year, Tet comes early, affecting monthly data indexes when workers go home for the holidays. Not surprisingly, retail sales in January grew 20% year-over-year, with both goods and services posting double-digit year-on-year growth.

While international tourism is gradually recovering, domestic tourism continues to be vibrant and bustling. Tan Son Nhat Airport served more than 149,000 passengers on January 27th, easily breaking the record of 128,000 before COVID-19 during Tet.

While consumption trends suggest that Vietnamese consumer spending is picking up with greater recovery potential (Figure 6), February data to adjust for Tet spikes will provides a clearer view of the recovery trajectory of domestic demand.

In the external sector, January 2023 trade data weakened significantly due to the 7-day holiday closure of factories. As a result, industrial production closed January on a weak note, declining both on a month-to-month and year-to-year basis.

Additionally, the latest PMI of 47.4 further attests to the prolonged weakness in the manufacturing sector, although new export orders pick up as global sentiment improves slightly (Chart 7).

As a result, exports fell by 21.3 percent year-on-year, mainly due to a decline in exports of electronics, textiles and footwear, and machinery and equipment (Figure 8).

Even so, Vietnam recorded a sizable trade surplus of $3.6 billion in January 2023, as imports also dropped significantly by 28.9% year-on-year.

However, nearly half of the decline in imports came from electronic products, signaling the slowing technology cycle will continue, considering the global electronics industry demand outlook remains weak at least through the first half of 2023.

However, Vietnam started 2023 with a positive new FDI inflow of $1.2 billion. Despite the short-term global technology downturn, technology companies continue to invest in Vietnam.

The latest development project from Chinese display maker BOE Technology Group, a supplier of displays to both Apple and Samsung, plans to invest up to $400 million to build two factories.

Meanwhile, the sentiment of European businesses also shows a similar optimistic view, shown in the latest quarterly survey of the European Business Association (Eurocham) in Vietnam.

The fact that, although total FDI declines in 2022, FDI in the manufacturing sector is still stable, further highlighting Vietnam’s competitive advantage in this field.

Source: Tap Chi Tai Chinh