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5 major risks hindering economic recovery in Vietnam

5 major risks hindering economic recovery in Vietnam

Saturday 19, 02 2022
The recovery momentum of the Vietnamese economy in 2022 is believed to be faced with many risks and challenges.

Economic overview

Over the past two years, the world economy in general and Vietnam’s economy in particular have experienced a huge crisis. First was the health crisis and then came the economic crisis. However, according to Dr. Can Van Luc, chief economist of BIDV, this is only a short crisis. The gobal economy is gradually recovering as many countries have returned to the state of development as before the epidemic.

Vietnam’s economy

However, Mr. Luc forecasts that in 2022 the world economy will still face many risks. First of all, the unpredictable developments of the Covid-19 pandemic and complicated geopolitics will make oil, gold and securities prices more volatile and unpredictable.

Besides, inflation is increasing at a high level. Inflation is mainly due to sharp increase in prices of many commodities such as energy, oil, and fertilizer.

Rising inflation risks have prompted governments in many countries around the world to step up strict control measures, narrow support packages, buy assets and raise interest rates. This will slow down the recovery and growth of the economy on the global scale.

The world economy in 2020 was in deep recession, down 3.1%, and now it is recovering strongly. In 2022, the world economy’s growth momentum is likely to weaken, keeping the growthr rate at 4.5-5%. On the other hand, with the emergence of new Covid-19 variants, global GDP growth in 2022 may decrease by 0.2 - 0.4% compared to withouth-new-variants scenarios.

The world economy

Similarly, in more than two years of living with the epidemic, Vietnam's economy has faced many challenges. In 2021, GDP was only 2.58%, the lowest in a decade.

This growth rate is lower than that of 2020 because the Covid-19 epidemic has seriously affected all sectors of the economy. Many businesses fell into extremely difficult circumstances, especially in the third quarter of 2021, many key economic zones had to implement prolonged social distancing.

Therefore, it is said that Vietnam's economic growth is lagging far behind global economic growth. When the world economy was recovering quickly in a V-shape, that of Vientam was going sideways, even falling sharply in 2021. It is not until 2022 that Vietnam’s economy will recover, which means there is a delay of 6 months or even 1 year compared to the world.

Top 5 risks preventing economic recovery

Mr. Luc said that the recovery momentum of Vietnam's economy in 2022 is still facing many risks.

Firstly, the epidemic prevention and control policy is inconsistent, and many localities still have extreme disease prevention and control regulations that affect businesses and the whole economy.

Secondly, the impact of the epidemic is still complicated and very different among industries and fields. Many industries have recovered quickly and benefited from the epidemic, while many have been heavily affected and unable to recover in a short time. In general, the economy is recovering in a K-shape.

This is the reason why recently, the Government has issued a recovery support program, supporting businesses with focus, not in a mass as in the period of 2021.

Thirdly, the demand of the economy is still very weak. Last year, retail sales fell by 3.8%. Meanwhile, normally this figure increases by 10%/year. This index accounts for a very large percentage of GDP. A good recovery will be the driving force for the economy to grow better and vice versa.

Fourth, the total investment capital of the whole society increased slowly, by only 33%. People do not attach importance to investing in production and business activities in the context of the epidemic.

Final is the risk of increased inflation. Although CPI in 2021 was low, the risk of inflation is present due to large-scale economic stimulus packages along with the recovery of the domestic economy.

The control of inflation

The control of inflation in 2022 will face many difficulties when CPI may increase sharply from the beginning of the year due to the gradual recovery of the world economy and commodity prices tend to increase. On the other hand, Vietnam is a country with extensive and comprehensive integration with the world, so the possibity of importing inflation through the import of raw materials is very potential.

Along with that are risks involving increased public debt risks, State budget deficit and Government's debt repayment obligations.

Source: theleader

Compiled by VietnamCredit

Categories
Vietnam Economy

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