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Vietnam's economy to face unpredictable risks in 2022

Vietnam's economy to face unpredictable risks in 2022

Monday 18, 04 2022
Many experts believe that the Vietnamese economy is facing too many uncertain risks from both outside and inside, which are difficult to predict.

Three major risks for the economy

Vietnam's GDP in the first quarter of 2022 increased by 5.03%, which is high compared to that in the same period of 2020 and 2021. However, Dr. Nguyen Duc Kien, Head of the Prime Minister's Economic Advisory Group, said that this figure does not reflect the true nature of the economy and the absorption capacity of the market.

According to Mr. Kien, from now until the end of the year, economic growth pressure will be huge and unpredictable. Three risk factors have arisen in the first quarter, causing strong impacts on the macro-economy, beyond what the Government had predicted when formulating social and economic development plans before.

economic growth

The first is the global energy and fuel crisis. This is an absolutely unpredictable problem. Although the US had declared an embargo on Russia, it still imported oil from this country and returned to negotiating to buy heavy oil from Venezuela.

Second, the Russia-Ukraine conflict has pushed the world into an inflationary spiral. Currently, US inflation has increased to the highest level in the past 31 years. Similarly, the EU is also suffering from high inflation rate, causing Vietnam to import inflation from outside.

Third, the economy has just recovered slowly after the Covid-19 pandemic, it is hard to predict the market's reaction.

"At first, we predicted that after opening the door, there would be a wave of "revenge buying" after 2 years of people being restrained and social distancing. However, up to this point, this is not true, or only true in the short term, but in the medium and long term (from 6 months or more), there would be no revenge buying", Mr. Kien commented and cited examples from textile enterprises.

It can be seen that the orders in the second quarter of textile enterprises are to serve the needs of the Western countries' Autumn - Winter 2022. Thus, the decrease in the number of orders proves that there is no such thing as "revenge buying". Instead, people around the world are increasingly tightening their spending due to concerns about inflation risks and prolonged economic and political instability. This will greatly affect the recovery rate of domestic enterprises and the whole Vietnamese economy.

The World Bank's report also shows that, in Asia alone, 2022’s economic growth rate may decrease by 0.5%. For Vietnam, this rate for 2022 is forecasted to increase by 6-6.5%. However, up to now, the brightest scenario for the economy is probably only at the lower end of the forecast. In the worst case, economic growth will reach around 4%.

The World Bank

Regarding inflation, if there is no change, Vietnam's inflation will stay at 4% (+/- 0.3%). In addition to the VND 300,000 billion stimulus package, inflation in 2022 is likely to reach 5%, but if the growth rate is kept at 6%, it will still help the economy recover better.

Be proactive in the face of economic uncertainties

According to Dr. Le Xuan Nghia, in the context of world and domestic economic instability, especially high raw material prices, to ensure macroeconomic stability, state management agencies need to have solutions to control inflation.

Inflation in Vietnam largely depends on gasoline and food prices. Accordingly, when gasoline price increases by 10%, inflation will increase by 0.36%. If gasoline price increases by another 10%, inflation will increase by 0.29%. An addition of 10% increase in the price of this commodity will increase inflation by 0.23%. Thus, after 3 times increase in gasoline price in the last month could increase inflation in Vietnam by 0.9-1.1% compared to last year.

Inflation in Vietnam

Besides, inflation is also affected by food prices, which is also quite large. Mr. Nghia expects inflation to increase by about 0.4% because of food prices.

Many people say that Vietnam imports a lot of inflation from the outside through raw materials, but we also export inflation. The total amount of inflation input and output will increase inflation by about 0.9%. Combining all of these factors, inflation this year will be about 3.9% or 4%.

Agreeing with the uncertain risks to the Vietnamese economy in 2022, Prof. Nguyen Mai, Chairman of the Association of Foreign Investment Enterprises, also said that the world and domestic economies is dealing with too many unpredictable factors this year. With the current developments, it is not possible to predict economic growth 1 or 2 months in advance.

According to Mr. Mai, many organizations around the world have changed their forecasts weekly to keep up with new developments of the world situation and have timely response solutions. Therefore, state management agencies and the Government of Vietnam also need to update the world situation, and forecast possible situations in order to proactively respond.

Not only providing solutions to existing economic problems, state management agencies and the Government also need to forecast new developments in advance to prepare response plans to minimize risks", Mr. Mai emphasized.

Source: theleader

Compiled by VietnamCredit

 

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Vietnam Economy

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