Russia-Ukraine crisis: A new economic variable
If the Russia-Ukraine crisis causes disruptions in oil and gas supply and high oil prices, it will affect Vietnam's economic growth.
The recovery trend of the Vietnamese economy can be seen through the statistics on the socio-economic situation in the first two months of the year released by the General Statistics Office.
Trade in goods continues to be a positive trend. Vietnam’s total import-export turnover of goods in the past two months surpassed the 100 billion USD mark, estimated at 108.52 billion USD, up 13% over the same period last year. Of the number, export turnover was estimated at 53.79 billion USD, up 10.2% year on year.
“Vietnam's export prospects are very positive, as many of Vietnam's major economic partners are recovering and many countries are still implementing economic stimulus packages. When market demand rises, Vietnam's exports will grow positively," said an official of the Ministry of Industry and Trade.
Not only exports but also industrial production will have many positive prospects when domestic demand recovers and people's incomes improve after returning to normal work. The socio-economic development and recovery program that the Government is implementing will also have a positive impact on all fields, according to experts.
Vietnam’s industrial production is in a recovery trend. In the first two months of the year, the Index of Industrial Production (IIP) was estimated to increase by 5.4% year on year.
According to the General Statistics Office, the timely solutions and direction of the Government have created confidence in the business community. In the first two months of this year, the number of businesses entering and returning to the market rose by 46.2% over the same period last year.
Thanks to the "new normal" state, production and business have recovered and public investment has also improved. In the past two months, disbursed investment capital from the State budget was estimated at 46,300 billion VND, equaling 8.8% of the year plan and increasing by 10.4% year on year. This result will make a positive contribution to economic growth in 2022.
New variables of the economy
The trend of the national economy is positive, but the challenges ahead are huge. And this challenge comes not only from the variable that has been mentioned for a long time - the Covid-19 pandemic - but also from a new variable: the Russia-Ukraine conflict.
"The conflict between Russia and Ukraine will greatly affect the global and the Vietnamese economy," said Luong Van Khoi, deputy director of the National Center for Socio-Economic Information and Forecasting.
“According to our calculations, if the oil price is at 100 USD/barrel, it will reduce Vietnam's economic growth by 0.2%. If the price of oil is at 140 USD/barrel, the decrease could be as high as 0.4%. But this is just a scenario for oil prices. There are many other impacts related to global economic growth, to commodity supply chains, to global financial markets,” Mr. Khoi said.
The concern of many economic experts is whether or not Vietnam will maintain its commitment to open the market in the current stressful pandemic situation. If maintaining the commitments, the possibility of achieving a growth rate of 6-6.5% this year will not be too difficult.
“This year, the pressure on the economy is maintaining macroeconomic stability. If Vietnam can maintain macro-stability, along with market opening, the growth momentum will return. Last year, Ho Chi Minh City grew at a negative 6.78%, as long as this economic locomotive recovers, the overall growth of the economy will be more positive,” said Mr. Dang Duc Anh, Deputy Director of the Central Institute of Economic Management Research (CIEM).
Many macroeconomic indicators show that the economic situation is still difficult. One of them is that the demand of the economy has not yet recovered strongly. According to the General Statistics Office, the total retail sales of goods and services in the first two months of 2022 only increased by 1.7% over the same period last year. The trade deficit has returned, with 937 million USD for the first two months of the year.
Although the number of businesses resuming operation is positive, in the past two months, there were still 32,700 enterprises temporarily suspending business, up 51.3% over the same period of the previous year. In addition, there were 8,900 enterprises shutting down waiting for dissolution procedures, up 6.3%, and nearly 3,300 enterprises completing dissolution procedures, down 9.4%. Thus, on average, 22,400 businesses withdrew from the market every month.
Budget revenue in the first two months of the year reached 323,800 billion VND, equaling 22.9% of the yearly estimate and increasing by 10.8% year on year.
Escalating geopolitical tensions between Russia and Ukraine would have a short-term impact on the Vietnamese stock market, but the market still has positive growth prospects in the long term thanks to stable macro factors.
Some travel companies in Vietnam are worried that the worsening Russia-Ukraine crisis will negatively impact the tourism industry as Russia is one of the major source markets of Vietnam’s tourism industry.