Until the beginning of this year, the economic climate in Vietnam was characterised by great optimism. In fact, despite the global COVID-19 crisis, Vietnam had come through the last two years relatively well. A major contributing factor seems to be the opening up of the economy and the country after the harsh lockdowns of last summer. Indeed, Prime Minister Chinh’s opinion expressed in September 2021, “We must live with the disease”, is diametrically different from China’s zero coronavirus strategy. Nevertheless, dark clouds still appear in the sky. New areas of tension are emerging. It is becoming clear that Vietnam’s economy cannot be analysed in isolation from global events. 

Beyond the health situation, which is still causing uncertainty in parts of the world, there have been ongoing armed conflicts between Russia and Ukraine since February. In addition to the presence of inflationary tendencies, the most massive debt policy in the history of man (Modern Monetary Theory) and an increase in state intervention policies (Keynesianism), further shortages and price increases for goods and services have now been added worldwide. Meanwhile, central banks such as the FED are now beginning to tighten their monetary policy. 

The uncertainty in China is putting further strain on global supply chains. Vietnam has to find its path along this continuum. In terms of political positioning, Vietnam is pursuing a course of neutrality, perhaps with the hope of avoiding being caught between conflicting global political interests. 

Vietnam’s Financial Future 

The country is building on the same solid economic strategies it’s already taken. These include: 

  • a clear commitment to free trade 
  • a healthy, manageable, national budget (debt to GDP ratio of 43.7%)
  • an investor-friendly economic climate. 

All these points were the basic prerequisites that allowed Vietnam to overcome tension relatively well. In short, Vietnam shows the strengths of a liberal-oriented economic policy, in contrast to the interventionist policy that dominates worldwide. 

On the other hand, it is also important to create spreading effects on all sectors of the economy by providing high-quality inputs and ensuring outputs for the agricultural and industrial sectors.

A Hesitant Optimism

In conclusion, trade turnovers expanded and reached USD 152.8bn (exports) and USD 152.3bn (imports) in the first 5 months of 2022. The trade balance remained in surplus at USD 0.52 bn; FDI disbursements increased by 7.8% to USD 7.71 bn in the same period. An expression of rising optimism is also the growing volume of credit (+6.76%). 

In addition, the tourism sector is also picking up noticeably as a result of the country’s extensive opening. According to BIDV, Vietnam expects economic growth of 5.5-6% for 2022. Even if this does not yet reach the records of pre-COVID periods, the growth is still clearly above the now reduced development target for the global economy of 3.2-3.6% set by the ADB, World Bank and IMF. The stable exchange rates are a positive factor for Vietnam, even if a certain inflation risk (CPI increase of 3.8-4.2% expected for 2022) is a threat. 

The biggest threat to Vietnam, however, is likely to come from external downside risks. Despite the positive trends, disbursements for public investment are still below expectations and the number of non-performing loans at 1.5% poses strong risks.

All in all, there’s reason for cautious optimism about the Vietnamese economy. Beyond the current difficulties, it is worth looking to the future—Vietnam is at the centre of one of the most prosperous regions in the world. Now it is time for an Asia-Pacific century!

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Tim Burrill
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