Investment News

Vietnam's economy is assessed as 'impressive recovery' in 2022


At the exchange on October 27, the chief economist of the Office of the Asian Development Bank (ADB) Vietnam, Mr. Nguyen Minh Cuong, assessed the growth recovery of Vietnam's economy in 9 years. The first month of the year has been very impressive and ADB believes that the medium and long-term growth prospects of the Vietnamese economy are very bright.

 Ships docked and unloaded goods at Tan Cang - Cai Mep port (Saigon Newport Corporation) in Ba Ria - Vung Tau province. Documentary photo: Trong Duc/VNA

This strong recovery is based on many factors such as a stable macroeconomic background, political stability as well as success in controlling the epidemic, which has created a foundation for the development of the economy. This recovery was relatively even across all growth engines, from industry, agriculture to services, while exports grew strongly. The confidence of foreign as well as domestic investors and the people in the very strong recovery has created support for the economy.

In terms of risks, the biggest risk to Vietnam's economy is the impact of external factors, which is becoming more and more obvious. Global inflation, especially in the developed world, forces these countries to choose between economic growth or curbing inflation. These countries had to make the harsh choice of prioritizing inflation control before stabilizing the financial system. The fact that developed countries raise interest rates to fight inflation has had a strong impact on growth, thereby having a knock-on effect on capital and currency markets and on developing economies.

The increased tightening of monetary policy by developed economies has had an immediate impact on Asia, causing import inflation, with inflation in most countries in the region increasing, combined with the from rising food prices and rising fuel prices. However, in Southeast Asia, including Vietnam, the impact of import inflation, increase in food prices, and gasoline prices is better controlled, so inflation is lower, but in general, inflation rate is lower. inflation tends to increase and the risk of import inflation is very strong.

One of the other effects is on the exchange rate. A series of local currencies depreciated very sharply. As of August, the level of devaluation of the Vietnamese dong is relatively low. This, on the one hand, helps Vietnam stabilize the macro-economy, but on the other hand, it is increasingly causing obstacles when putting increasing pressure on foreign exchange reserves. In terms of exports, the Vietnamese dong has relatively little depreciated against the US dollar, but it has increased against the currencies of most of the trading partners that compete directly with Vietnam, such as Malaysia, Thailand, and the Philippines.

In that context, it is entirely appropriate for the State Bank of Vietnam to raise the deposit rate ceiling and the lending rate ceiling, and widen the exchange rate band from ±3% to ±5%, which is completely appropriate, contributing to stabilizing the banking system. macroeconomic conditions for medium and long-term growth.

Regarding the impact on exports of the above moves, an increase in interest rates will increase the value of the currency, increasing the cost of capital for businesses, while the widening of the exchange rate band will reduce the value of the currency. In general, the ceiling rate of the Vietnamese dong fell by nearly 3%. The Vietnamese currency tends to depreciate, which will support exports, while affecting imports. Slippage trend is likely to increase. However, Vietnam still achieved a trade surplus of 8 billion USD in mid-October.

Vietnam needs to be flexible, continue to adjust the exchange rate band and raise interest rates with an appropriate level. The problem is which tool will Vietnam favor in the near future.

While Vietnam tightens monetary policy, fiscal policy plays an important role and public investment disbursement is the support for growth. The problem for Vietnam is the space for fiscal policy as well as the space for fiscal policy.

Vietnam needs to manage the foreign exchange and banking markets, after the lessons of the 2008-2010 crisis, to avoid putting too much pressure on monetary policy.

The most important thing is that the confidence of foreign investors and people is still increasing. Vietnam's measures are effective.

Regarding the forecast of Vietnam's economic growth in 2022 at 6.5%, ADB Country Director, Mr. Andrew Jefffries, said the bank will keep this forecast, despite the growth of Vietnam's economy. South tends to be higher, due to increasing risks globally and potentially affecting the Vietnamese economy.

ADB kept its forecast for 2023 unchanged at 6.7%, taking into account highlighted risks such as economic slowdown in regions around the world that could affect Vietnam's exports.

There are signs that the status of orders for the future has tended to slow down in some regions, some countries around the world. However, it is too early to confirm that there will be a severe and prolonged recession in the near future.