Wednesday, April 17, 2024
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Home » Global recession fears weigh on Vietnam’s export-driven economy

Global recession fears weigh on Vietnam’s export-driven economy

by Pathirara Senarath
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The country’s central bank said it will prioritise policies related to valuation of its currency to support exports and meet the economy’s credit demand.

Vietnam’s economy was one of the best performing in Southeast Asia last year, but fears of a global recession weigh on the export-dependent nation.

The country’s economy rebounded in 2022, as it recovered from the impact of the COVID-19 pandemic.

Its gross domestic product (GDP) surpassed targets and grew by 8.02 per cent, driven by exports and domestic consumption, marking the fastest pace of growth in 25 years.

Strong export performance and the recovery of domestic tourism have also contributed to Vietnam’s economic growth in 2022, economists said. The numbers, however, conceal downside risks that could curtail growth this year, making life uncertain for the masses.

Some are already feeling the pinch.

EMPLOYMENT ISSUES

Ms Bui Thi Tien, a migrant worker in Ho Chi Minh City, lost her job nearly two months ago.

She is among about half a million workers who have been laid off or seen their working hours slashed in the fourth quarter of 2022, due to softening global demand for Vietnam’s exports.

“Without work, I don’t have enough money to buy milk for my daughter. My husband works at a factory. He makes US$380 per month, but the income is not enough for food and rent for the whole family,” she told CNA.  

Finding a new job this year could prove challenging for those like Ms Tien, as experts expect demand for Vietnam’s exports to slow significantly.  

This comes amid major markets like the United States and Europe being hit by a cost-of-living crisis, fuelled by Russia’s invasion of Ukraine.

There are also fears that China’s reopening, while presenting growth opportunities, could further drive up energy and commodity prices.

CUSHIONING THE ECONOMY

Vietnam’s central bank said it will prioritise policies related to the valuation of its currency to support exports and meet the economy’s credit demand.

“Our biggest political duty is to control inflation, which is set by the National Assembly at around 4.5 percent for 2023. Monetary policies aim to support further economic growth,” said Mr Dao Minh Tu, deputy governor of the Vietnam State Bank.

According to the Standard Chartered Wealth Expectancy 2022 report, which examines shifts in decisions among emerging affluent, affluent and high net worth investors, 36 percent of Vietnamese investors cited inflation as their top concern.

But cushioning Vietnam’s economy from an unfavourable environment may be easier said than done.

Mr Cuong Minh Nguyen, principal country economist at the Vietnam Resident Mission of the Asian Development Bank, said that external headwinds will further expose internal structural problems of Vietnam’s economy.

“We also see a structural problem with all of the regulations, the regulatory framework of Vietnam, especially related to the disbursement of public investment,” he said.

Vietnam plans to focus on public investment in major infrastructural projects to boost growth.

But this could be stymied by red tape, bottlenecks, as well as an ongoing anti-corruption crackdown that limits Vietnam’s ability to disburse public funding.

“It’s not just the question of how fast Vietnam can facilitate public investment, but the question is also how much Vietnam can spend and disburse the investment,” Mr Cuong said.

He also pointed to other challenges facing Vietnam’s economy such as overreliance of the capital market on the banking sector, growing number of non-performing loans.

However, there is hope still, with experts saying that Vietnam might be spurred to speed up long-delayed structural reforms that would set further foundations for a market economy that further promotes the private sector for future economic expansion.

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