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A brighter outlook for Vietnam’s economic growth

A brighter outlook for Vietnam’s economic growth

Wednesday 17, 08 2022
Vietnam's GDP growth in 2022 is forecasted to be high, thanks to the acceleration of economic recovery in the first 6 months of 2022.

GDP growth forecast at 7.5%

In a recent report, the World Bank (WB) in Vietnam forecast that Vietnam's GDP growth is to increase sharply from 2.6% in 2021 to 7.5% in 2022, and inflation by an average of 3.8%.

Vietnam's GDP growth

According to the report, Vietnam's economy grew by 5.2% in the fourth quarter of 2021, 5.1% in the first quarter of 2022, and 7.7% in the second quarter of 2022, as consumers make up for their previously pent-up needs and international tourist arrivals increase.

Previously, VinaCapital - one of the leading real estate development and investment management companies in Vietnam - also forecast that Vietnam's GDP growth would reach 7.5% in 2022. The release of July’s economy statistical report not only reinforces that forecast but also shows that Vietnam's economy will grow by a staggering 10% in the current quarter, according to VinaCapital.

“We forecast Vietnam's economy to grow at least 7.5% in 2022 and at least 10% in the third quarter, and we believe earnings growth will surpass 20% this year. This forecast is based on Vietnam's solid economic performance - in stark contrast to the US stock market, where earnings growth expectations seem unrealistically high," said fibre2fashion, citing a press release of VinaCapital.

Vietnam's annual retail sales increased sharply year on year, which clearly shows that domestic consumption in Vietnam is the main driver of economic growth in the country.

In the first half of this year, Vietnam's retail sales (excluding the impact of inflation) increased by 7.9% year-on-year; this has increased to 11.9% in the first 7 months of this year, much higher than the 7% year-on-year growth that VinaCapital previously forecast for 2022.

While a slowing US economy is likely to hold back Vietnam's export and economic growth, the impact of that slowdown will be more than offset by the country's strong domestic economy, the company noted.

Germany's Junge Welt newspaper recently commented that Vietnam seems to have overcome the difficulties of the world economy caused by the Ukraine - Russia conflict. The article cited data from the General Statistics Office of Vietnam, which stated that up to 85% of businesses surveyed were optimistic about the third quarter of 2022.

country's GDP

The article commented that Vietnam seemed to have successfully overcome the difficulties of the world economy. The country's GDP in the second quarter of 2022 was up 7.72% compared to the same period in 2021, increasing sharply from 5.05% in the first quarter of 2022. This positive result is mainly due to the strong increase in exports. In June 2022, Vietnam's exports increased by 20% over the same period in 2021.

Risk warning

Despite forecast increases, organizations issued warnings about risks in the Vietnamese economy. The WB said that the above-mentioned positive outlook still depends greatly on potential increasing risks, including slowing growth or inflation in key export markets, and the world commodity price shock continues to unfold. In addition, global supply chains may continue to be disrupted, and new variants of COVID-19 may emerge.

There are also challenges domestically, including labor shortages, rising inflation risks, and higher risks in the financial sector.

In the context that the domestic recovery process has only just begun, the outlook for global demand is weakening, and inflation risks increase, the WB report recommends that the authorities need to react proactively.

In the immediate future, regarding fiscal policy, the focus should be on implementing the policy package to support economic recovery and development and expanding the targeted social safety net to help the poor against the impact of fuel price shocks and rising inflation.

In the financial sector, the WB recommends that it is necessary to closely monitor and strengthen the reporting and provision of bad debts and to issue a mechanism to handle insolvency.

WB experts

According to WB experts, if the risk of increased inflation becomes a reality, which is when core inflation accelerates and the consumer price index exceeds the target of 4% set by the Government, the State Bank of Vietnam should be ready to switch to monetary tightening to curb inflationary pressure by raising interest rates and tightening money supply.

The German newspaper Junge Welt also warned that rising prices could lead to the risk of slowing down the growth of the Vietnamese economy. For example, the strong demand for construction materials while steel production is falling in China has caused the domestic steel price to increase sharply. The high price of gasoline, which causes the price of other materials to increase, makes the situation harsher and pushes construction prices higher.



Compiled by VietnamCredit

Vietnam Economy

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