Call for caution amid strong performance

Policy flexibility vital to counter external pressures

GDP rose 13.67% in the third quarter, marking the nine-month growth at 8.83%, the highest in the past decade.

HANOI: Vietnam’s latest economic data shows the country is on track to surpass the government’s target of 6% to 6.5% for gross domestic product (GDP) growth this year.

However, policy needs to maintain flexibility and caution to cope with rising external pressure.

The General Statistics Office reported positive signs in most socio-economic aspects in the past nine months.

The macro-economy remained stable while inflation was under control, major balances were ensured, and monetary and fiscal policies were implemented in a proactive, flexible and effective manner.

GDP rose 13.67% in the third quarter (3Q), marking the nine-month growth at 8.83% – the highest in the past decade.

This is a miracle rebound after a 6.02% contraction a year ago when the nation shut down some factories as part of its tough pandemic control measures.

The consumer price index increased 3.32% in 3Q and 2.73% in the nine months.

At the end of September, Vietnam recorded an estimated trade surplus of Us$6.5bil (Rm30bil).

The state’s budget collection reached 94% of the target, up 22% from a year earlier.

The recovery momentum has continued since the end of last year, especially after Vietnam opened its borders and revived the economy in March this year.

However, it is worth noting that the growth engines during this period were exports, retail and disbursement of foreign direct investment (FDI), instead of exports and disbursement of public investment as expected by many experts.

From January to September, the country’s import-export saw a yearly rise of 15% to Us$558.5bil (RM2.60 trillion), of which the export turnover surpassed Us$282bil (RM1.3 trillion), up 17.3%, while imports reached Us$276bil (RM1.28 trillion), up 13%.

According to the Industry and Trade

Ministry, the country’s export revenue is expected to reach about Us$368bil (RM1.7 trillion) by the end of the year, up 9.5% yearon-year and likely to surpass the targets set by the government and the ministry at around 8%.

Meanwhile, retail sales of goods and services increased 21% in the last nine months, compared to a drop of 5% in the same period of last year.

The rapid and successful control of the pandemic in Vietnam has also strengthened foreign investors’ confidence in the country’s economy.

Inflows of foreign direct investment (FDI) reached a five-year high of Us$15.43bil (Rm72bil), up 16.3% year-on-year.

Vietnam has achieved certain success in maintaining macroeconomic stability amid the turmoil of the international background.

However, the pressure is still great given persistent rising inflation in the world and the higher risk of “importing inflation”, especially after the US Federal Reserve (Fed) hiked interest rates several times this year, which made the US dollar appreciate compared to most other currencies and drove capital flows out of emerging countries.

This pressure has already been reflected in inflation data, which, while remaining relatively low, increased over the previous year.

The Vietnamese dong has also depreciated against the US dollar (yet low compared to other currencies).

The State Bank of Vietnam (SBV) last month raised interest rates by one percentage point in the face of the Fed’s hawkish rate hikes.

Recent discussions focus on how Vietnam will direct policy in the near future and whether its choice is different from other countries that are choosing to sacrifice growth to control inflation. Regarding growth in the last quarter and into next year, Vietnam’s driving forces will also face many challenges.

Exports are expected to face a slowdown due to the decline of the world economy, especially in Vietnam’s major trading partners such as Europe, the United States and China.

The risk of narrowing export markets is real, with export orders in industries declining.

In its report last week, the World Bank slashed its economic outlook for Asia-pacific to 3.2% in 2022, down from a 5% forecast in April. China’s GDP is also projected to be down from 5% to 2.8% this year.

In the Organisation for Economic Co-operation and Development’s Economic Outlook Interim Report for September 2022, global growth is projected to remain subdued in the second half of 2022, before slowing further in 2023 to annual growth of just 2.2%.

The US and German economies are forecast to expand just 1.5% and 1.2%, respectively.

With regard to the driving force related to FDI, it’s not easy to maintain the growth rate in both new investment attraction and disbursement, especially high-quality FDI due to high demand for infrastructure, green production and business conditions such as green energy, environment and living conditions for experts.

Meanwhile, retail growth was mainly driven by domestic consumption and tourism, but 4Q is the low season, and travel demand next year is expected to decrease compared to this year.

Therefore, it is no coincidence that many organisations have predicted Vietnam would post high economic growth this year, but next year it will decrease a little bit.

According to the World Bank’s September report, Vietnam’s GDP may reach 7.2% this year but will fall to 6.7% in 2023.