Measures put recovery on the front foot

May 17, 2022 | 09:00
Despite the global economic recovery dented by geopolitical uncertainties, Vietnam is showing its ability to bounce back strongly this year. However, risks remain and hamper the country’s economic growth trajectory.
Measures put recovery on the front foot
Vietnam has risen in official pandemic recovery indices thanks to production continuity and vaccinations, Photo: Le Toan

The International Monetary Fund (IMF) released in April its World Economic Outlook report, stating that global growth is projected to slow from an estimated 6.1 per cent in 2021 to 3.6 per cent in 2022 and 2023. This is 0.8 and 0.2 percentage points lower for 2022 and 2023 than projected in January.

“Beyond 2023, global growth is forecast to decline to about 3.3 per cent over the medium term. War-induced commodity price increases and broadening price pressures have led to 2022 inflation projections of 5.7 per cent in advanced economies and 8.7 per cent in emerging market and developing economies - 1.8 and 2.8 percentage points higher than projected last January,” the report said.

“Multilateral efforts to respond to the humanitarian crisis, prevent further economic fragmentation, maintain global liquidity, manage debt distress, tackle climate change, and end the pandemic are essential.”

However, despite the grey picture, the IMF forecasted that Vietnam will witness positive growth this year and next year, at 6 and 7.2 per cent, respectively.

These rates are quite impressive as compared to ASEAN-5 - comprising Indonesia, Malaysia, Philippines, Thailand, and Vietnam – whose growth rates are expected to be 5.3 and 5.9 for 2022 and 2023 – with Indonesia (5.4 and 6 per cent), Thailand (3.3 and 4.3 per cent), the Philippines (6.5 and 6.3), and Malaysia (5.6 and 5.5 per cent). For the whole Asian region, the respective rates will be 4.9 and 5.1 per cent.

Anne-Marie Gulde-Wolf, acting director of the IMF’s Asia and Pacific Department, said, “Luckily, now in 2022, we see signs of the Vietnamese economy rebounding, rebounding strongly. This is based on a very successful vaccination campaign. We see rising retail sales, production, exports going up, and much higher mobility than what we saw before,” Wolf said.

“We now project growth at 6 per cent for this year, and 7.2 per cent in 2023, and recently approved fiscal support package that we find appropriate is starting to show its effect.”

However, the IMF has highlighted the growth for Vietnam just in terms of percentage increases, not in terms of US dollars.

While Vietnam’s GDP scale in 2021 was estimated to be $367.7 billion, it was smaller than in many other regional nations, such as Singapore ($563 billion), Malaysia ($887 billion), Indonesia ($1.15 trillion), and Thailand ($456 billion).

Thus, though Vietnam is expected to grow higher than these nations in terms of percentage rise, its actual growth in terms of US dollars is still lower.

Vietnam’s current global economy links mean it is very sensitive to fluctuations or disruptions in the international market, which are now undermined by geopolitical risks such as the Russia-Ukraine conflict, increases in input material prices, and many other factors.

According to the General Statistics Office, last year, Vietnam’s total export-import turnover was $668.55 billion, or 1.8 times higher than the GDP of $367.7 billion. Total export revenue reached $336.31 billion, up 19 per cent on-year, and import value hit $332.23 billion – up 26.5 per cent on-year.

Reining in the pandemic

As of late last week, Vietnam saw nearly 2,000 new COVID-19 cases, and nearly 216 million assorted vaccine doses administered. All eligible people over 18 in the country have received the first and second shots, and nearly 60 per cent have received a third shot. Vietnam has also boosted inoculation for children between 5-17 years old.

Nikkei Asia last week issued a COVID-19 Recovery Index ranking, which showed that Vietnam rose 30 places to 62, on par with Japan and Singapore. This index assesses countries and regions in terms of disease management, vaccine deployment, and social flexibility.

Previously, Vietnam had improved 28 places to 90 in the January index thanks to its coronavirus vaccination rate being among the best in the world.

Since March 15, the government has lifted some mobility restrictions in a bid to revitalise the tourism industry. In 2019, the tourism industry created 9.2 per cent or $24.1 billion of GDP, receiving a record number of over 18 million foreign visitors. In 2020 and last year, the number of international arrivals in Vietnam plunged 78.7 and 95.9 per cent, respectively.

In the first four months of 2022, Vietnam welcomed 192,400 international tourist arrivals, up 184.7 per cent on-year.

According to the General Statistics Office, in the first four months of 2022, the economy saw 49,600 newly-established enterprises with total registered capital of VND635.3 trillion ($27.62 billion), employing 348,200 new labourers – up 12.3 per cent in the number of enterprises, 1.2 per cent in capital, and 2.3 per cent in the number of labourers as compared to those in the same period of last year.

If an additional VND1.35 quadrillion ($58.7 billion) registered by 17,100 operational enterprises is included, the total registered capital inserted into the economy in the period is VND1.98 quadrillion ($86 billion), up 39.4 per cent on-year.

Furthermore, the first four months also saw 30,900 enterprises resume operations, up 60.6 per cent on-year.

Notably, foreign direct investment disbursement in the January-April 20 period reached $5.92 billion, an on-year rise of 7.6 per cent. While a decrease of 56.3 per cent was seen in the newly-registered capital to nearly $3.7 billion, a respective surge of 92.5 and 74 per cent was recorded in the investment injected into underway projects to nearly $5.29 billion, and paid-in capital and share purchase deals to $1.83 billion.

Risks lingering

The World Bank said that Vietnam’s manufacturing exports are expected to grow at a slower pace, mirroring moderating growth in Vietnam’s main export markets including the US, China, and the EU.

In the first four months of 2022, Vietnam’s export turnover from these markets reached $35.6 billion, $19 billion, and $15.5 billion – up 18.9, 16.7, and 19.9 per cent, respectively.

“However, the outlook is subject to heightened risks to the downside. Slowing growth in major trading partners and terms-of-trade shock due to the Russia-Ukraine conflict and associated sanctions may affect recovery. This could be compounded by new COVID-19 variants,” said the World Bank, forecasting Vietnam will grow by 5.3 per cent this year.

Projecting the economy will increase 6.5 per cent in 2022 and 6.7 per cent in 2023, the Asian Development Bank also warned that Vietnam’s recovery is clouded by major near-term downside risks.

Besides the pandemic, slowing global recovery and a surge in global oil prices from the Russia-Ukraine conflict would directly affect Vietnam’s external trade and domestic oil prices, which would affect inflation.

Moreover, it said, uncertainties in the global financial markets and the withdrawal of monetary and fiscal accommodation by advanced economies would weaken the local currency, rendering imports more costly and putting additional upward pressure on inflation.

Era Dabla-Norris, who led an IMF team to Vietnam in April to work with authorised agencies about how the Vietnamese economy has performed, said, “Decisive structural reforms are needed to meet the authorities’ aspirations of sustained, inclusive growth. The business climate should be improved by creating a level playing field for finance and land access, and reducing regulatory burdens, especially on small, medium-sized, and young firms.”

“We expect GDP growth to accelerate to 6.1 per cent in 2022 and 6.3 per cent in 2023 from 2.6 per cent in 2021, led by a recovery in domestic demand, strong exports and high foreign investment inflows, particularly in the manufacturing sector. The economy contracted by 6 per cent on-year in Q3 2021 on measures to control a surge in COVID-19 cases.

Economic activity resumed in Q4 2021 as policy changed to a more flexible approach to the pandemic, made possible by higher vaccination rates; almost the entire adult population of Vietnam is now fully vaccinated.

Risks to our growth outlook remain, including the global economic implications of the war in Ukraine and sanctions on Russia, further pandemic-related shocks and high commodity prices.

Vietnam’s economic prospects remain susceptible to shifts in external demand due to the economy’s high degree of openness. However, we expect the export sector to continue to perform well into the medium term, benefitting from Vietnam’s cost competitiveness, trade diversion from China, and implementation of key trade agreements.

Export-related foreign funding inflows have not weakened despite the supply disruptions in Q3 2021. Inward investment remained strong in 2021 at $19.7 billion, down marginally from $20 billion in 2020. We are factoring in a gradual resumption of tourism inflows from 2022, although pandemic-related disruptions remain a significant risk to our forecasts. Under our baseline, we forecast a reversal to a current account surplus in 2022 and 2023 from a deficit of about 1 per cent of GDP in 2021.”Source: Fitch Ratings

By Thanh Thu

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