Vietnam’s economic recovery remains strong despite global uncertainties: WB

The World Bank (WB) released the June edition of its monthly Vietnam Macro Monitoring on June 13, highlighting that the economic recovery remained strong despite heightened global uncertainties.

Industrial production continued a robust expansion of 10.4 percent year-on-year while retail sales rebounded with growth of 4.2 percent month-on-month and 22.6 percent year-on-year, suggesting strong recovery of private consumption.

About 173,000 international visitors arrived in May, about 70 percent higher than in April and the highest figure since April 2020, yet still less than 16 percent of pre-pandemic levels.

Sales of consumer services, which were hit harder than the sales of goods last year, experienced a stronger rebound (41 percent year on year compared to 18.3 percent year on year, respectively).

The rebound was due to the booming accommodation and catering services, which increased by nearly 70 percent and were 12.4 percent higher its pre-pandemic level three years ago. Travelling also tripled compared to a year ago although it was about 60 percent lower than its pre-pandemic level.

Amid heightened global uncertainties, export growth slowed and imports growth plateaued.

FDI commitments were 879 million USD in May, the lowest level since September 2020, and nearly 50 percent lower than a year ago. This is the fourth consecutive month of decline, reflecting the heightened economic uncertainties caused by the protracted war in Ukraine and the health-related lockdowns in China.

On the other hand, FDI disbursement remained strong in May, up 8.5 percent year on year, marking a six-month expanding streak.

CPI inflation edged up from 2.6 percent in April to 2.9 percent in May driven by a rise in gasoline and diesel prices, which were 54.5 percent higher in May than a year ago. Producer price inflation showed signs of easing in May, with both input costs and output prices rising at the slowest rates in three months.

Credit growth remained strong at 16.9 percent year on year while overnight interbank interest rates dropped sharply from 1.73 percent in April to 0.33 percent as of the end of May.

Thanks to strengthening domestic demand, total revenue collection increased by an estimated 29.4 percent year on year in May, keeping the budget in surplus for the fifth consecutive month.

The WB recommended that Vietnamese authorities should be vigilant about inflation risks associated with continuing rise in prices of fuels and imports, which may dampen the ongoing recovery of domestic demand. Temporary support including targeted transfers should be considered to help poor households weather the price surge.

As the commodity price shock appears to be mainly affecting oil and fuels, with passthrough to transport costs, temporary targeted subsidy for main gasoline and fuel users (such as truckers) could also be considered to alleviate hardship and blunt the inflationary pressures.

Investing in alternative energy production would reduce the economy’s dependence on imported fuels in the medium term and promote greener growth.