Global uncertainties adversely impact Vietnamese economy: WB
VOV.VN - Continued weak external demand coupled with global uncertainties are adversely affecting the Vietnamese economy, translating into contraction in both imports and exports, as well as a slowdown in industrial production, said the World Bank in its Vietnam Macro Monitoring, June edition.
According to the report, the industrial production index (IIP) continued to weaken, registering an increase of only 0.1 % in May, down from 0.5% in April.
However, retail sales remained robust, expanding by 11.5% in May, the same figure recorded in April. Sales of goods improved from 9.7% in April to 10.9% in May.
Elsewhere, sales of services declined from 19.2% in April to 7.6% in May. The export of goods was 6% lower than a year ago due to weak external demand, while the import recorded an annual falling of 18.4% in May, reflecting the continued slowdown in demand for foreign inputs for production and exports.
The Consumer Price Index (CPI) inflation registered a fourth month of decline, softening from 2.8% in April to 2.4% in May due to a fall in global energy prices and domestic transport costs. Core inflation remained elevated at 4.5% in May, compared to April’s 4.6%.
FDI commitment slowed in May amid global uncertainties continuing to weigh on investor confidence, while FDI disbursement registered US$1.8 billion in May, comparable to the previous year.
Most notably, the State Bank of Vietnam (SBV) cut the refinancing interest rate from 5.5% to 5%, whilst overnight lending facility rates declined from 6.0% to 5.5%, the third consecutive cut since March.
In addition, credit growth continued to slow, decelerating from 9.2% in April to 9.0% in May, thereby reflecting weakening demand. The monthly budget balance registered a large deficit of around US$2 billion in May.
Revenue collection saw an annual decrease of 35.8% reflecting one-off base effects due to high post-COVID revenue from sales of land, property related, and VAT collections in 2022. In addition, public expenditure accelerated by 27.8% in May.
According to the World Bank, while domestic consumption remains robust and comparable to pre-pandemic levels, credit growth continues to slow, reflecting weak credit demand.
If global financial conditions tighten more, external demand may weaken further. Northern Vietnam started experiencing brownouts in late May, which, if not addressed promptly, could impact the economy.
As inflation appears to be tapering, the State Bank of Vietnam (SBV) eased monetary policies to support the economy. However, monetary policy authorities will need to closely monitor whether the divergence in the monetary policy stance between Vietnam and other countries is creating pressures on capital flows and exchange rate.
World Bank experts also emphasized the need to accelerate public investment disbursement (including for National Target Programs) that would support aggregate demand and economic growth in the short run.
At the same time, prioritizing investments in digital and green technologies, infrastructure, and in human capital will help promote sustainable long-term development.
As manufacturing exports have slowed and employment in manufacturing has been affected, it would be important to quickly identify and support impacted workers and families through the social welfare system.
Moreover, streamlining administrative procedures and removing regulatory hurdles will help promote business activities and investments needed for economic growth.
