The government has warned that geopolitical uncertainties may continue affecting Vietnam’s efforts to boost production and exports this year.

Production and export boost acknowledged to fortify targets, illustration photo

“In the coming time, it is forecast that the global economic growth will slow down with a rise in risks, in addition to strategic and geopolitical competition among major nations becoming increasingly complicated and unpredictable, while the Russia-Ukraine conflict still continues,” said Prime Minister Pham Minh Chinh last month at a government cabinet meeting on Vietnam’s economy. “This will affect domestic production and exports.”

The General Statistics Office reported that in Q1, Vietnam’s trade turnover reached $154.27 billion, down 13.3 per cent from nearly $178 billion recorded in the same period last year, which was 15 per cent higher than in Q1 of 2021. In Q1, total export turnover hits $79.17 billion, down nearly 12 per cent on-year, and imports are valued at $75.1 billion, down 14.7 per cent on-year.

The government has targeted total goods export-import value to be about $795 billion this year, up about 8 per cent against last year. In which, the export turnover will be $398 billion, up over 8 per cent on-year. The trade surplus will stay at about $1 billion, far lower than the $11.2 billion recorded last year.

To realise this goal, it is clear that bigger efforts must be made in boosting production and expanding exports, but the task is not so easy given difficulties escalating in the global economic landscape.

According to a new World Bank report on long-term growth prospects, nearly all the economic forces that powered progress and prosperity over the last three decades are fading. As a result, between now and 2030 average global potential GDP growth is expected to decline by roughly one-third from the rate in the first decade of this century, to 2.2 per cent a year.

“In the near term, Vietnam faces heightened risks associated with external headwinds and domestic vulnerabilities. Persistent inflationary pressures and the prospects of more aggressive monetary tightening, especially in the United States and other advanced economies, could induce volatility in global financial markets and hamper economic growth even further,” the World Bank said in its latest Taking Stock report for Vietnam.

“Additionally, the risk of de-globalisation looms, with heightened geopolitical tensions and conflicts raising uncertainty about the future path of global trade and growth and would substantially affect small open economies,” it said.

At present, Vietnam’s key export markets include the United States, China, and the eurozone, and the Economist Intelligence Unit has forecasted that their growth rates in this year at 0.7, 5.7, and 0.7 per cent, respectively.

According to the Ministry of Planning and Investment, Vietnam’s total export-import turnover is double of GDP. Thus any fluctuations in the global market such as high inflation, high prices of materials, and supply chain disruptions can have negative impacts on macroeconomic stability and growth.

Nguyen Minh Cuong, principal country economist at the Asian Development Bank in Vietnam, told VIR that while headwinds are often discussed, tailwinds can also be significant, and they are bright spots in the global economy in 2023, including in Vietnam.

“Firstly, there is the US Fed’s policy shift. When it has begun to mitigate the intensity of interest rate hikes, this has helped subdue pressure on Vietnam’s exchange rates. The declining exchange rate of the USD and VND will relieve pressure on the country’s monetary policy,” Cuong said.

Secondly, China has opened its doors to the world, creating opportunities for Vietnam. “Of course, China’s move may also create pressure on the global energy market. Although the US economy is slowing down significantly, it can likely avoid a recession. This may still give Vietnam export opportunities,” he said. “Finally, ASEAN member states are maintaining good growth momentum. ASEAN is the fourth-largest export market of Vietnam. Those ahead of Vietnam have been doing a good job in controlling inflation and maintaining growth – and this is a massive opportunity for the country.”

The World Bank also stated that the baseline outlook for Vietnam’s economy remains favourable. Reflecting domestic and external headwinds, GDP is expected to grow by 6.3 per cent in 2023.

“The domestic demand is expected to be affected by higher estimated inflation of 4.5 per cent average in 2023. In the first half of 2023, manufacturing exports will moderate as demand from the US and eurozone weakens, while the path to China’s economic recovery remains uncertain,” the World Bank said. “The expected recovery of Vietnam’s major export markets during the second half of the year will positively impact exports. Growth is expected to reach 6.5 per cent in 2024 onward as exports strengthen in response to recovery in Vietnam’s primary markets of the US, China, and the eurozone.”