Why is Vietnam’s economy still forecast to grow at an excess rate?

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Vietnam's economic outlook will face increasing risks due to the impact of the global economic downturn. Photo: T.D

Recovery is faster than expected

At the press conference of the Asian Development Bank (ADB) on the Update on Vietnam's economic development on September 21, Mr. Andrew Jeffries, ADB Country Director in Vietnam, said that the economy of Vietnam recovered faster than expected in the first half of 2022, and continued to grow amid a challenging global environment.

A stable economic recovery thanks to a strong macroeconomic foundation is the most important condition for Vietnam's rapid recovery and growth. Compared with some countries, including those with good recovery and growth, the foundation of macroeconomic stability is not as stable and certain as Vietnam's. This is the reason for the long-term national credit rating, Vietnam is the only economy in the Asia-Pacific that has been upgraded while other economies have either been downgraded or left unchanged.

According to the ADB, a return to full domestic mobility and the lifting of travel restrictions due to the Covid-19 pandemic for foreign visitors will promote a strong recovery in tourism in the final months of 2022 and be a motivation for the service industry.

In particular, Vietnam's prudent monetary policy and effective price control, especially for petroleum products, which helps curb inflation at 3.8% in 2022 and 4% in 2023; not changing from the forecast made in the Asian Development Outlook report in April 2022.

In addition, increased investment, controlled inflation, and expansionary monetary and fiscal conditions are expected to boost domestic consumption, fueling the ongoing economic recovery in 2022. Although global geopolitical tensions and tightening financial conditions continue to limit FDI inflows in 2022, foreign direct investment (FDI) disbursement will increase sharply as investors foreign investors continue to believe; at the same time doing business in Vietnam becomes easier.

Growth forecast of 6.5% in 2022 and 6.7% in 2023

According to ADB's Chief Economist in Vietnam Nguyen Minh Cuong, although measures to limit the Covid-19 pandemic have been eased, boosting consumer spending and investment in the region, ADB still warned about the "global turbulence" to the recovery when food and fuel prices soar along with interest rate hikes by central banks around the world.

According to ADB economists, Vietnam's economic outlook will face increasing risks due to the impact of the global economic recession, high inflation in the US and the European Union, and increasing pressures.

Inflationary forces in the country and a labor shortage are expected to affect the recovery of the service-manufacturing industries for export. The tightening of financial conditions by central banks around the world also has a negative impact on Vietnam's financial and economic conditions. In addition, factors that are difficult to control, such as the Covid-19 outbreak and the possibility of an oil price increase, are also expected to bring unpredictable consequences to Vietnam's economic development prospects.

Besides, an existing domestic factor that hinders economic development is the slow implementation of public investment and social expenditures. ADB said this is a systematic delay that has existed since the beginning of this year and will reduce Vietnam's economic growth if it is not resolved quickly.

For Vietnam, economic growth forecasts for 2022 and 2023 were maintained by ADB in the last three Asian Development Outlook Reports. Accordingly, Vietnam's GDP will grow by 6.5% this year and 6.7% next year. With prudent monetary policy and effective price control, especially in petroleum products, inflation in Vietnam will stay at 3.8% this year and 4% next year, unchanged from the forecast in April.

Thus, with the above growth forecast, Vietnam will be the economy with the strongest growth in Southeast Asia in 2022 and 2023.