[Vietnam]Vietnam's Economy 2022: Maintaining an Overall Recovery

Author: Zhao Ruyi, Research Assistant, Yunnan University, Institute of International Relations

Unofficially Translated from https://mp.weixin.qq.com/s/FT9yEmvuiVSZa-7WzSMGZA

The year 2022 is a year of opportunities and challenges. In the face of the "new constant" of the recurring epidemic, the Vietnamese government has adopted a multi-pronged policy of "safe and flexible adaptation and effective control of the epidemic" in an attempt to efficiently integrate economic development and epidemic control. This article will summarise the key measures and results of Vietnam's economic recovery over the past year.

I. Key tasks and measures of the Vietnamese government

In January 2022, at a meeting between the central government and local authorities, Deputy Prime Minister Le Minh Khai set the tone for the annual economic and social development work, emphasising that the key tasks for Vietnam's economic development in 2022 are, firstly, to recover and promote production and business operations; secondly, to strengthen exports; and thirdly, to accelerate investment in infrastructure development.

Around these tasks, Vietnam has proposed 12 key measures, including establishing a sound law enforcement system and organisational structure, restructuring the economy, promoting digital transformation, promoting regional economic linkages, improving education and training, enhancing national defence and security, and integrating extensively into the international arena. The Economic and Social Recovery and Development Plan was promulgated at the end of January, focusing on providing support to residents, workers, enterprises, cooperatives and businesses affected by the epidemic, as well as industries and sectors that create momentum for economic recovery and development in five areas including healthcare, employment, business recovery, infrastructure development and business environment improvement. Specifically, this includes tax relief and financial support policies such as 3 months of housing rent support (VND500,000-1 million/month) for workers in the first half of 2022, 30% reduction in land and water rent, 2% annual loan interest subsidy support for the period 2022-2023, and a reduction in the loan tax rate of approximately 0.5%-1%.

II. Strong economic recovery

With the global expansion of vaccination against the COVID19 and the relaxation of epidemic control measures in many countries, Vietnam's economy is on a strong recovery track. According to data from the Vietnam National Bureau of Statistics, Vietnam's gross domestic product (GDP) grew by 5.03% year-on-year in the first quarter of 2022, 7.72% year-on-year in the second quarter, 13.67% year-on-year in the third quarter compared to the same period in 2021, and 8.83% year-on-year in the first nine months, which is the highest growth rate for Vietnam's economic development since 2011.

Vietnam's economy is growing rapidly in all sectors in 2022. In agriculture, forestry and fishery, the output value of agriculture, forestry and fishery in the first nine months grew by 2.99 per cent year-on-year, accounting for 4.04 per cent of GDP. As of mid-September, Vietnam's rice sown area reached 1,505,300 hectares, up 100.2 per cent year-on-year, while crops such as pepper and rubber grew year-on-year; new forestation covered about 191,200 hectares, up 4.1 per cent year-on-year; and total fishery production was about 6.628 million tonnes, up 2.6 per cent year-on-year. In terms of industry, the processing and manufacturing sector remains an important engine driving economic growth. In the first nine months, Vietnam's industrial output rose by 9.63% year-on-year, with the output of the processing and manufacturing sector increasing by 10.69% year-on-year. On the import and export side, Vietnam's total exports and imports in the first 10 months reached approximately US$58.27 billion, up 0.1% YoY and 5.7% YoY; the goods trade surplus reached US$9.4 billion (compared to a trade deficit of US$630 million in the same period last year).

In addition, the number of newly registered and resumed businesses in Vietnam in the first nine months of 2022 was 1.633 million, with total new registered capital of VND3.9082 trillion and total social investment of around VND2.1303 trillion, of which foreign direct investment (FDI) in Vietnam reached $15.4 billion, up 16.3 per cent year-on-year and the highest level since 2018. Notably, Vietnam's full liberalisation in March this year drove a strong recovery in the service sector, which grew by 10.57 per cent year-on-year and contributed 54.17 per cent to GDP. Vietnam's Consumer Price Index (CPI) rose by an average of 2.73 per cent year-on-year, with underlying inflation at 1.88 per cent, making it a relatively low inflation country. Against the backdrop of a global economy that continues to be hit by the epidemic, Vietnam's economy stands out and the World Bank also predicts that Vietnam's GDP will grow by 7.2% in 2022, broadly in line with the forecast results of the Global Economic Prospects Report released by the International Monetary Fund (IMF).

III. Increased potential risks

In the face of the complex and severe international environment and multiple tests such as the epidemic, Vietnam has flexibly adjusted its policies and seized opportunities. At present, Vietnam's economic development is showing growth, but it has not yet offset the adverse impact of the epidemic.

First, the international situation is severe and complex, and Vietnam faces the risk of macroeconomic instability. The conflict between Russia and Ukraine has triggered a rise in world raw material prices, rising transport costs and supply disruptions, high inflation, interest rate hikes and recession in the US and Western countries, the US inducing manufacturing industries to move to its home country, and tightening monetary and fiscal policies in many countries, among other multiple factors affecting Vietnam's exports. In particular, in the second quarter, due to the Russia-Ukraine conflict and global economic volatility, the prices of oil, food and cultural and sports commodities in Vietnam were high and stocks, bonds and securities funds fell, with the market capitalisation of the Vietnamese stock market falling by 18.4% in the first half of the year compared to the end of 2021.

Secondly, Vietnam's domestic fiscal space has shrunk with high inflation, high bad debt rate of banks and many potential risks in the credit structure, especially the rapid increase in retail credit and corporate bond investment. Tran Quoc Phuong, Deputy Minister of Planning and Investment, also said that one of the biggest risks facing the Vietnamese economy in 2022 is inflation. The State Bank of Vietnam forecasts that inflation in Vietnam will exceed 4 per cent by the end of 2022. However, the stagnant supply of funds in the state budget and the high demand for capital make it difficult to reduce interest rates in the economy. In addition, Vietnam's agricultural production and people's health are at risk due to the spread of the Omicron virus, the outbreak of monkey pox and abnormal climate change, and problems have been revealed in the deployment of human resources and infrastructure development. This was 4.9 times more than the same period last year. The Steering Committee for Innovation and Development of Vietnamese Enterprises also said that Vietnam's real estate market is shrinking, credit pressure is increasing and tax revenue is unstable. The Vietnam Private Economic Development Research Council noted that private enterprises in Vietnam face cash depletion in production, operation and procurement of raw materials by the end of 2022.

In 2022, the world's unprecedented century of major changes will accelerate its evolution, the international environment will be significantly more unstable and uncertain, and the impact of the new pneumonia epidemic will be widespread and far-reaching. In contrast, Vietnam's economy is highly open and production is heavily dependent on the country of origin. Against the backdrop of inflation faced by many countries around the world, the decline in global consumer demand will limit Vietnam's commodity exports to a certain extent, and there are many potential risks to the rapid economic recovery. Overall, Vietnam's economy will remain on an overall recovery trend in 2022, despite its faltering steps.