Upbeat outlook for Vietnam’s domestic production

International Business News  –  According to the latest report from the World Bank (WB), Vietnam’s gross domestic product (GDP) is expected to grow from 2.6% in 2021 to 7.5% in 2022, thanks to the booming production and service sectors. In addition, inflation is expected to average 3.8% this year.

Vietnam’s economy has grown by 5.2%, 5.1% and 7.7% in the fourth quarter of 2021, the first quarter of 2022 and the second quarter of 2022, respectively.

The international rating agency Standard & Poor’s now assesses Vietnam’s manufacturing purchasing managers’ index (PMI) at 51.2, above 50 for the 10th consecutive month, although down from 54 in June. The index showed signs of improvement in business conditions in Vietnam. For now, producers are optimistic about the outlook for production in the next 12 months.

Data from S&P Global Ratings also shows that merchandise exports are growing faster than total new orders, suggesting world import demand has outpaced Vietnam’s production of goods. Production orders have risen over the past 10 months, but the pace of production expansion has slowed to its slowest pace since April. This encourages producers to continue increasing commodity production for some time to come. But the level of expansion remains at the lightest and lowest level in the current growth chain due to input price pressures and transportation difficulties in the context of high oil prices.

Prices and supply pressures have shown signs of easing since the beginning of the third quarter. Input cost inflation has slowed to its lowest level since October 2020 as some input prices fell in global markets. However, cost growth has remained above average since the impact of the coronavirus waned due to higher oil, gas and freight costs due to the conflict between Russia and Ukraine. Commodity output prices continued to rise, but inflation slowed and moderated.

S&P Global Ratings chief economist said: “The recent explosive growth in Vietnam’s production sector slowed in July, but companies can still boost output and jobs to secure more and more orders. Despite some demand Signs of decline, but there is an encouraging picture as pressures on supply and prices ease. Input cost inflation is slowing and supply chains are stabilizing. Factors that have long been causing serious problems for businesses have diminished, fueling growth power.”

In the past two months, the delivery time of suppliers has also shortened and gradually stabilized. There has been a marked reduction in lead times since the weakest month of the past 22 months. The most recent delivery delays are mainly related to COVID-19 concerns and increased shipping costs. Inventory of finished goods also decreased from February to July, with the decline in July being higher than that in June. Some companies reduce inventory to meet the growth rate of new orders, while many companies advocate exporting inventory products to reduce logistics costs.

However, there are still some factors that could threaten the outlook for Vietnam’s economy, such as slowing growth in key export markets, price shocks for multiple commodities, continued disruptions to global supply chains, labor shortages, rising inflation and risks in the financial sector, or new variants of the coronavirus appearance etc.

With domestic recovery still beginning, weak global demand and increased inflation risks, the latest World Bank report recommends a proactive response from the authorities. In the short term, on the fiscal side, efforts must be made to implement recovery and development packages and expand social protection networks to support the poor and those vulnerable to rising fuel prices and inflation. In the financial sector, it is important to closely monitor and strengthen the reporting of bad debt provisions and to apply an amount to the loss of liquidity.

If inflation risks increase and the consumer price index exceeds the government’s target of 4 percent, the State Bank should be prepared to turn to monetary tightening to quell inflationary pressures by raising interest rates and tightening liquidity supply.

The World Bank’s chief representative in Vietnam said: “To keep economic growth at the expected rate, Vietnam needs to increase its annual production capacity by 2-3%. International experience shows that investing in the education system, an important component of investment and reform, can increase the productivity of the workforce. In the long run, a competitive workforce will create the efficiency needed for Vietnam.”