Trajectory uncertain for Vietnam’s growth

Illustrative photo. (Source: VNA)

World Bank East Asia and Pacific chief economist Aaditya Mattoo told VIR that under the fresh studies of the World Bank, Vietnam is witnessing a brighter growth outlook thanks to its increasingly improved business climate fuelled by a large-scale vaccination and opened skies. However, global uncertainties including the Russia-Ukraine conflict will have both direct and indirect impacts on the economy.

The World Bank last week released its forecast that Vietnam’s economy will grow 5.3 per cent in 2022 – strongly bouncing back from 2.58 per cent last year, given the strong performance by export-oriented manufacturing and domestic demand recovery. Last October, the bank forecast a 6.5 per cent growth rate for the country.

“Additional shocks could lead to a low case scenario where GDP grows 4 per cent in 2022, recovering to 6 and 6.5 per cent in 2023 and 2024, respectively, in a scenario with eased mobility restrictions domestically and internationally,” Mattoo said at the bank’s launch last week of the April 2022 East Asia and Pacific Economic Update.

“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 clash and associated sanctions may affect recovery,” stated the update. “This could be compounded by new COVID-19 variants. Economic recovery will also hinge on the recovery of domestic private demand, which has been slow, highlighting consumer and investor uncertainty. The current surge in infections may lead to temporary labour supply and production disruptions.”

The Asian Development Bank (ADB) last week also launched its Asian Development Outlook, forecasting that Vietnam’s economy will grow 6.5 per cent in 2022 and 6.7 per cent in 2023, respectively. However, it also warned that negative impacts from geopolitics and the pandemic will affect Vietnam’s growth this year.

The Ministry of Industry and Trade (MoT) reported that last year, the total export-import turnover between Vietnam and Russia reached $7.3 billion, including $4.5 billion earned by Vietnam’s exports, or only 1.33 per cent of the Southeast Asian nation’s total export value of $336.31 billion.

In the first two months of 2022, Vietnam earned from Russia an export turnover of $555.3 million, up 10.2 per cent on-year. Vietnam also used $446.2 million for importing goods from Russia, up 15.9 per cent on-year. As for Ukraine, in 2021, trade turnover between the two countries reached $720 million, an increase of 51 per cent from 2020. In the first two months of this year, the figure hit $66 million.

According to global data analysts and provider FocusEconomics, Vietnam’s GDP is projected to grow at the fastest rate in ASEAN this year. “Industrial production is projected to accelerate significantly this year from 2021’s average level. Moreover, the underlying strength of Vietnam’s industrial sector remains intact: Vietnam is an attractive low-cost base for manufacturing firms, including those looking to relocate from China due to the US-China trade tensions.”

According to the World Bank, many countries also have less room to use fiscal and monetary policy to deal with this persistent crisis, adding uncertainty and downside risks to the global recovery momentum, which again could affect Vietnam. Major countries that experienced an economic rebound in 2021 are expected to start unwinding supportive policies, including monetary policies that could affect the financial sector of many emerging economies, including Vietnam.

“The short to medium-term prospects are subject to serious downside risk. Major economies will also experience a softening of growth in 2022 as their economies revert to longer-term economic patterns,” the World Bank said. “The growth of Vietnam’s major export markets, the US and China, is projected to slow to 3.8 and 5.1 per cent in 2022, respectively. This heightens uncertainty and downside risks to the global recovery momentum, which in turn could affect Vietnam’s exports and economic recovery.”

Fitch Solutions Macro Research more than a week ago also said it expects Vietnam’s real GDP growth to accelerate to 6.8 per cent in 2022. “Nevertheless, we note that headwinds to growth have risen following the outbreak of the Russian-Ukraine conflict, which has led us to revise down our growth forecast for Vietnam by 20 basis points,” it said in a report on Vietnam’s economic outlook.

“We have lowered our Vietnam’s 2022 real GDP growth forecast to 6.8 from 7 per cent previously as economic headwinds have risen following the outbreak of the Russia-Ukraine conflict,” it added.

However, Fitch Solutions Macro Research also warned that Vietnam’s economy is highly reliant on exports and the growth slowdown in major trade partners like China, US, and the EU will weigh on external demand.

“We have revised our 2022 US growth forecast from 3.5 to 3.1 per cent, and our Eurozone forecast from 4.0 to 3.4 per cent. Among the Asian economies, we believe that Vietnam is likely to be one of the most exposed to the slowdown in the US and EU, given that exports to the US and the four-largest EU economies account for close to 40 per cent of its GDP.”

In Q1 of 2022, Vietnam’s export turnover reached $25.2 billion from the US, up 13.2 per cent on-year; and $11.1 billion from the EU, up 15.4 per cent on-year, according to the MoIT.

“Authorities should encourage exporters to seek new markets and innovate into new products through global value chains and existing free trade agreements to ensure more export resilience,” the World Bank suggested.

Vietnam’s economy grew 5.03 per cent in Q1, higher than the on-year rise of 4.72 and 3.66 per cent in the same periods of 2021 and 2020, respectively.

On March 31, Deputy Prime Minister Le Minh Khai inked a governmental decision approving the scheme on improving national credit ranking improvement until 2030. Under which, efforts are to be made to enable Vietnam in 2030 to achieve the credit ranking of Baa3 from Moody’s or at least BBB- from Standard & Poor’s and Fitch.n