Vietnam’s Upbeat Economic Outlook Outlier to Slowing Growth in Region: IMF

The first half of 2022 saw a positive economic rebound in Vietnam as the country’s GDP grew 7.72 percent with solid exports and consumer spending. Here, Vietnam Briefing provides a report on how the International Monetary Fund (IMF) analyzed certain trends in the economy with an optimistic outlook on the country’s growth.

As per the International Monetary Fund (IMF), Vietnam’s upbeat economic growth is leading a differing path to the slowing trend in other economies elsewhere in Asia. In addition, Vietnam’s inflation rate has also remained under control as domestic inflation pressures have been mostly limited to fuel prices and direct-related services like transport.

Consumer prices in the first seven months of the year did pick up yet remain below the central bank’s 4 percent target for the year. This is partly thanks to Vietnam’s delayed recovery during 2021, which has kept inflation under control while maintaining food prices and energy costs below regional peers.

IMF optimistic on Vietnam’s growth

These successes, according to the IMF, can be attributed to the country’s flexible adoption of a living-with-COVID strategy and nationwide vaccination coverage.

Support policies such as low-interest rates, strong credit growth, and the government’s Programme for Socio-economic Recovery and Development have also facilitated strong manufacturing output and a recovery in retail and tourism activity.

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The global surge in food prices also has had a minor impact on domestic consumer prices largely thanks to the country’s ample domestic supplies, declining prices on pork – which remains the locals’ most preferred protein, from last year’s peak, and a preference for rice, which remains cheaper than other grains like wheat. Further, price gains for services, such as health and education, have also been very mild.

With such an optimistic outlook, the IMF recently lifted the growth rate forecast for Vietnam by a full percentage point from three months earlier, to 7 percent this year. Noticeably, this is, for the IMF, the only significant upward revision among other major Asian countries.  

The organization lowered the projection for Vietnam’s 2023 growth rate by 0.5 percentage points to 6.7 percent, but still, that remains an optimistic outlook compared to the rather dimming prospects elsewhere and would be the fastest pace among Asia’s major economies.

For Asia as a whole, the IMF’s growth estimates were lowered to 4.2 percent and 4.6 percent for this year and next in the IMF’s latest World Economic Outlook Update.

Key challenges

Despite Vietnam’s relatively subdued inflation, the rate could potentially pick up as more economic activities in the country rebound. Costs for transportation and commodities such as fertilizers and animal feed, according to the IMF, could also raise the prices for domestic goods and services accordingly, all putting more inflationary pressure on the economy.

Economic slowdown globally, including the world’s factory China and major advanced economies, could also be another impediment to Vietnam’s recovery. Particularly, the IMF’s World Economic Outlook lowered estimates to 3.2 percent this year and 2.9 percent next year amid the effects of the Russia-Ukraine crisis. Such a slowdown means lower demand for Vietnam’s exports, especially from major trade partners like the US, China, and Europe.

In addition, Vietnam may also suffer from the effects of increasing financing costs and further capital outflows as financial conditions are tightening as the US and other developed economies raise interest rates to cope with inflation.

Finally, headwinds from shortages of raw materials and restricted access to needed intermediate goods as well as further supply-chain disruptions can trigger greater uncertainty about global trade and financial markets.

Together, the IMF report brings forward several key actions from the economy in order to cope with such headwinds, including:

• Fiscal policy should play a leading role in the country’s economic rebound, with timely and flexible adjustments;
• The central bank should put a great emphasis on rising inflationary risks;
• Bad loans in the banking system and potential risks in real estate markets need to be closely monitored as well;
• The government should continue further economic reforms in terms of institutions, regulations, digital connectivity, labor, social safety net coverage as well as the country’s environmental agenda to unleash Vietnam’s considerable growth potential.

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