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|Uncertainty clouds export environment|
The National Assembly Economic Committee has warned that the country needs to be cautious about “a possible danger of new pandemic outbreaks due to new existing variants” which could undermine the domestic economy’s recovery and especially exports.
“We must keep a close eye on the developments of COVID-19, the current geoeconomic and geopolitical tensions and the anti-pandemic policies of countries, and policy moves of the central banks of big economies,” said the committee in a report delivered to the National Assembly (NA) last week.
The committee warned of risks in expanding exports as global economic growth is expected to decrease from 4.4 to 3.6 per cent. For example, in April, the International Monetary Fund cut the rate to 3.6 per cent both in 2022 and 2023, down by 0.8 and 0.2 percentage points as compared to the fund’s January forecast.
Also in April, some other international organisations have reduced Vietnam’s economic growth outlook for 2022, such as the World Bank (5.3 per cent for the baseline scenario and 4 per cent in a worse scenario – down 0.2 percentage from its forecast in early 2022 and far lower than the 6.5 per cent it predicted last October); the Asian Development Bank (6.5 per cent), and HSBC (6.2 per cent – down from its previous prediction of 6.5 per cent). The Economist Intelligence Unit also revised the rate from 3.9 to 3.4 per cent this year.
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 of 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.
Early this month, Fitch Ratings cut its forecast for China’s 2022 GDP growth to 4.3 from 4.8 per cent.
On May 20, Bloomberg Economics released a report stating that China’s economy will grow just 2 per cent this year, which would be far below the government’s official growth target of about 5.5 per cent. By comparison, GDP for the United States could increase 2.8 per cent this year.
Also, the EU has slashed its forecasts for economic growth in the 27-nation bloc amid the Russia-Ukraine conflict and disruptions to energy supplies. Accordingly, the EU’s GDP will expand 2.7 per cent this year and 2.3 per cent in 2023.
“Vietnam’s economy is open to the world, thus any fluctuations in the global market such as high inflation, high prices of materials, and supply chain disruptions can have negative impacts on the country’s macroeconomic stability, economic growth, inflation, and people’s lives and incomes,” said Minister of Planning and Investment Nguyen Chi Dung.
Late last year, predicting that the global market would see negative fluctuations in goods demand, the NA set a target that Vietnam’s export-import turnover this year would be $660.8 billion, including $329.9 billion worth of exports and $330.9 billion for imports, meaning a $1 billion trade deficit. This target is lower than the attainments last year, in which the export-import turnover hit $668.5 billion – up 22.6 per cent on-year, including $336.3 billion for exports – up 19 per cent on-year, with a trade surplus of over $4 billion.
The World Bank also warned, “The US, the EU, and China are expected to experience slower-than-anticipated growth in 2022, potentially affecting the country’s export prospects. Moreover, given that China is Vietnam’s second-largest export market and biggest source of imports, the full impact of lockdowns in China on Vietnam’s manufacturing and exports will be felt in the coming months.”
Under the bank’s figures, imports from China decelerated from 19.4 per cent on-year in February to 2.6 per cent on-year in March and 11.5 per cent on-year in April. Machinery imports from China, which account for over one-fifth of Vietnam’s total imports from this market and about half of Vietnam’s total machinery imports, were hit hardest, dropping by 15.2 per cent on-year in March and 6.4 per cent on-year in April, the first fall since June 2020.
Imports of fabrics, another important product group, also decelerated from 28.1 per cent on-year in March to 3 per cent on-year in April.
“Given the heavy reliance of Vietnam’s exports on materials and intermediate goods imported from China, persistent supply disruption could hurt Vietnam’s exports in coming months,” the World Bank said in its May bulletin on Vietnam’s economic situation. The bulletin also noted that uncertainty related to the war in Ukraine and its impacts on major commodity supply and prices is expected to weaken global growth prospects, potentially affecting demand for Vietnamese exports.
“Supply chain disruptions may continue to raise import prices and worsen the terms of trade, which already deteriorated significantly in the first quarter of 2022. This suggests that diversifying trade partners would be a prudent strategic consideration to mitigate risks and ensure continued export growth,” it said.
On the rise
According to the Ministry of Industry and Trade, in the first four months of 2022, export-import activities have taken place vividly, with enterprises increasing their exports thanks to foreign markets’ growing demands, and expanding imports to serve their domestic production.
After witnessing a trade deficit of $1.96 billion in February and $581 million in the first two months, Vietnam enjoyed a trade surplus of $2.05 billion in March and $1.46 billion in Q1, then also a trade surplus of $1.07 billion in April and $2.53 billion in the first four months – higher than the trade surplus of $1.5 billion in the same period last year – in which Vietnamese companies have a trade deficit of $9.2 billion and foreign companies see a trade surplus of $11.73 billion including crude oil exports.
In the first four months of 2022, the economy’s total import turnover is estimated to be $119.8 billion, up 15.7 per cent on-year. In which, Vietnamese companies raked in $40.9 billion, up 14.3 per cent, while foreign businesses earned $78.8 billion, up 16.7 per cent.
Meanwhile, the economy’s total export turnover is estimated to be $122.36 billion, up 16.4 per cent on-year. Vietnamese companies raked in $31.77 billion (up 21.6 per cent) while foreign businesses fetched $90.59 billion, including crude oil exports (up 14.7 per cent).
“The increase in export turnover of domestic enterprises is higher than that of foreign companies. This means great efforts of domestic businesses in business and production recovery and resumption of supply chains,” said the General Statistics Office in its 4-month socioeconomic report.
Despite COVID-19, the country has not applied the type of restrictions imposed in previous infection surges with a view to supporting the economy.
Looking ahead, pandemic containment remains the major domestic challenge, with the ongoing recovery in domestic demand as well as export performance resting crucially on the nature of containment measures.
On the external front, while Vietnam is well-placed to benefit from the recovery in global demand in light of the outsized role of exports in the economy and its membership in several free trade agreements, major flareups in COVID-19 infections across the world would continue to pose a significant downside risk for Vietnam’s exports.
Moreover, lasting scars from the pandemic on corporate sector balance sheets and on labour and employment may undermine the strength of the economic recovery in the medium to long term.
Despite banks’ efforts in loan restructuring, further action should be undertaken to safeguard banks’ asset quality to limit the erosion of their capital buffers – the banking system’s capital adequacy ratio stood at 11.5 per cent as of December 2021.
Against the backdrop of the State Bank of Vietnam’s forbearance policy on loan classification, it is vital to maintain heightened monitoring of the potential deterioration in asset quality – the on-balance sheet non-performing loan ratio was 1.5 per cent as of end-2021 – so as to provide timely warning and intervention.Source: ASEAN+3 Macroeconomic Research Office