AMRO forecasts strong recovery for Vietnam’s economy
According to a preliminary assessment of the ASEAN + 3 Macroeconomic Research Office (AMRO) after the annual consultation visit of the organization's leading experts to Vietnam recently, the Vietnam's economy has prospered strongly in early 2022 thanks to an active COVID-19 vaccination campaign, strong global demand for domestically produced products, and driving force from domestic demand and persistent foreign direct investment (FDI) flows.
Dr. Sanjay Kalra of AMRO commented: “The Vietnamese economy is expected to grow at 6.3 percent in 2022 and 6.5 percent in 2023. Inflation is projected to remain contained. This positive outlook rides on strong external demand, a recovery in domestic consumption and healthy investments inflows, bolstered by an appropriate macroeconomic policy stance”.
According to the assessment, the spread of COVID-19 pandemic caused by the Omicron variant in Vietnam has receded sharply in April 2022 and Vietnam has relaxed border restrictions as well as domestic control measures.
The aggregate output gap is expected to narrow significantly by the end of this year, however, the recovery will be uneven across sectors. Although the output of both the manufacturing and service sectors has surpassed 2019 levels, the service sector still faces many difficulties, especially the tourism, hotel and logistics.
Vietnam's consumer price inflation is projected to remain contained below 3.5% in 2022, as authorities plan to use oil price stabilization funds and price controls to offset pressures arising from developments in global energy prices.
Given the cyclical nature of the economy, AMRO recommends that Vietnam take a mildly supportive fiscal policy stance in 2022.
With the availability of fiscal space and the uneven recovery across economic and social sectors, this policy should provide targeted support to those that continue to be impacted by the pandemic, especially the micro sector, small and medium-sized enterprises (SMEs) and low-income households.
In addition, monetary conditions should to be normalized to contain inflationary pressures and reduce financial imbalances that have arisen in the low interest rate environment.
In terms of financial stability, AMRO believes that Vietnam needs to make efforts to increase provisioning and capital buffers to prepare for an increase in impaired assets, in view of the impending expiry of the forbearance policy. A macro prudential policy framework must also be put in place, including addressing imbalances in the real estate market.
According to AMRO, as Vietnam makes progress beyond its low-middle-income status, Vietnam will need to implement reforms across a range of sectors and adjust its financing policy for growth and development, and further strengthen investor confidence.
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