Illustrative image (Source: VNA)Supportive policies such as low interest rates, strongcredit growth, and the government’s Programme for Socio-economic Recovery andDevelopment have been accompanied by strong manufacturing output and a recoveryin retail and tourism activity, the article said.
The IMF has recently raised Vietnam growth forecast to7% this year, lifting it by a full percentage point from three months earlierand the only significant upward revision among major Asian economies.
The fund lowered the projection for next year by 0.5percentage points to 6.7%, but that still contrasts with dimming prospectselsewhere and would be the fastest pace among Asia’s major economies.
By way of contrast, growth estimates for Asia werelowered to 4.2% and 4.6% for this year and next in the IMF’s latest WorldEconomic Outlook Update, the article noted.
Vietnam’s inflation pressure has been mostly limitedto some goods like fuels and related services like transport. Consumers arelargely insulated from the global surge in food prices because of ampledomestic supplies, pork prices declining from last year’s peak, and apreference for rice, which remains cheaper than other grains like wheat.Further, price gains for services, such as health and education, have also beenvery mild.
Consumer prices in the first seven months of the yearrose, but remain below the central bank’s 4% target for the year. The economy’sdelayed recovery last year has kept core inflation, which strips out volatilefood and energy costs, below regional peers.
Inflation, however, could pick up as economic activitygets back to full speed. Higher costs for transportation and commodities suchas fertilizers and animal feed could also raise prices for a broader range ofgoods and services, adding inflationary pressure.
Vietnam’s recovery also faces headwinds from globalgrowth decelerating from 6.1% last year. The IMF’s World Economic Outlooklowered estimates to 3.2% this year and 2.9% next year amid the Russia-Ukraineconflict, and the slowdown in China and major advanced economies. Such aslowdown implies reduced demand for Vietnam’s exports, especially from keytrade partners like the US, China, and the European Union.
In addition, financial conditions are tightening asinterest rates in the US and other advanced economies rise to curb inflation.That in turn increases financing costs and can lead to capital outflows.
Finally, greater uncertainty about global trade andfinancial markets could weigh on the recovery, especially if some industrieslose access to needed intermediate goods because of further supply-chaindisruptions. That could curtail foreign investment in Vietnam, slowing productionand technological growth.
Together, these factors mean policymakers must beagile and make timely changes. Fiscal policy should take the lead in aidingrecovery, yet flexibly adjusted to evolving economic conditions.
The central bank should focus on rising inflationaryrisks, and communicate that it’s ready to act as needed and remains committedto meeting its inflation target, according to the article.
Authorities should also continue addressing bad loansin the banking system and closely monitoring for potential risks in real estatemarkets to safeguard financial stability.
Tackling the challenges relating to labour, social safetynet coverage and climate-related risks will further unleash Vietnam to itsconsiderable growth potential and continue advancing on a sustainabledevelopment path toward higher income status, the article said./.
VNA
