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An unprecedented economic crisis and its possible impact on Vietnam

The economic crisis caused by the Covid-19 pandemic has been followed by the economic crisis associated with the Russia-Ukraine conflict.

Vietnam is still facing difficulties which may have a direct impact on the GDP growth rate in 2022 and 2023 as well.

First, in production and business, there are at least three matters of concern.

Agriculture: the livestock industry is having big difficulties as animal feed prices are escalating, while the prices of finished products are not increasing proportionally. Pig farmers are in distress as animal feed prices have increased 15 times over the last two years.

Fisheries are affected by petroleum prices. Fuel prices have been escalating. Many fishing boats cannot go to sea, while many fishermen have to sell their boats. It is now the high fishing season, but output has decreased by one percent compared with the same period last year.

Food prices are predicted to increase in the next quarters of the year.

Industry and construction: growth has recovered, but more slowly than the previous year. The Index of Industrial Production (IIP) in May was estimated to increase by 4 percent over the previous month and 10.4 percent over the same period last year.

The index in the first five months of the year was estimated to increase by 8.3 percent compared with the same period last year (the growth rate in 2021 was 10 percent). Some production fields witnessed minus growth rates. 

The production of products from rubber and plastics dropped by 13.8 percent; repair, maintenance and installation of machines and equipment by 9.8 percent; water drainage and waste water treatment by 3 percent; the production of coke, refined petroleum products by 2.6 percent; and crude oil and natural gas exploitation and other mining industries by 1.7 percent.

Businesses, which make up over 60 percent of GDP, are still facing difficulties. The newly registered investment capital in the first five months of the year was VND761.035 trillion, down by 2.2 percent from the same period last year. Meanwhile, as many as 71,805 businesses suspended operation, or followed procedures to be dissolved, a sharp increase of 20 percent.

Second, in foreign economic relations, there are tense global financial conditions, which could be an obstacle socio-economic recovery and development.

The economic crisis caused by the Russia-Ukraine war has led to a sharp increase in input material prices. The increased dollar interest rates have put pressure on the Vietnamese government and enterprises’ foreign debt payment obligations. 

The zero Covid policy applied by China, with restrictions in travel, has caused the country’s economic activities to slow down and led to new disruptions in the global supply chain and affected Vietnam, which considers China its biggest import market.

High inflation, weaker global demand and supply disruption will affect economic prospects. The risk of high inflation this year is visible, caused by the price increase in materials, goods and services in the world. The demand for crude oil is predicted to increase sharply, while the market is experiencing the longest shortage period in decades.

Growth slows, inflation rises

Since most of the factors that drive Vietnam’s economic growth are bearing a negative impact, the GDP is predicted to see a modest growth rate of 5.5 percent this year or lower. 

Meanwhile, the inflation rate is expected to be high, at 6 percent in 2022 and 7 percent in 2023.

The inflation rate in the first five months of the year was curbed at 2.25 percent. However, pressure on inflation in 2022 and 2023. There are three reasons behind this.

First, the supply chain disruption is a factor creating pressure on inflation. Vietnam’s economy has high openness and its production heavily depends on input material imports, which account for 37 percent of total materials needed. The proportion is higher in the processing and manufacturing industry which is the major driving force of the economy – 50.98 percent.

Second, input material price increases have caused inflation all over the globe, including Vietnam. The inflation rate in the US is 8.6 percent, the highest rate since 1981. OECD has doubled its predicted inflation rate to 8.5 percent.

For Vietnam, petroleum products are strategic commodities which account for 3.52 percent of the total production cost of the entire economy, and 1.5 percent of total expenses of households. The petroleum price fluctuations will affect production costs and consumer good prices.

It is estimated that when the domestic petroleum price increases by 10 percent, this will increase the inflation rate by 0.36 percent.

Meanwhile, input materials, industrial metals, fertilizer, animal feed and food prices are staying high, which are beyond the predictions made by many international financial institutions.

It is estimated that for every one percent of input material price increase, the price of finished products will increase by 2.06 percent.

Third, total demand is on the rise, which could increase the inflation rate not only in 2022 and 2023, but the next few years as well.

Hai Loc


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