Phạm Sỹ Thành, Director of VEPR's China Economic Research Programme

The factors affecting the world economy in 2023 will bring significant challenges to Việt Nam but also open great opportunities for this country if it has suitable solutions to develop the economy.

Phạm Sỹ Thành, Director of the China Economic Research Programme at the Việt Nam Centre for Economics and Policy Research (VEPR), spoke to Vietnam News Agency about this issue.

Many financial institutions believe that monetary policy tightening for curbing high inflation and the unending energy crisis will be important factors affecting the world economy in 2023. What do you think about this issue?

The monetary policy tightening of the major central banks is one of the important factors that create a reduction of external demand of the economies as well as the decline in production of countries at present. However, this is only part of the difficulties to anticipate for 2023. The fact is that world inflation has already peaked while the roadmap of central banks' interest rate hikes will follow a much lower margin compared to that in 2022.

Besides that, I think there are three other factors that have a negative impact on the global economy. First of all, there is not ever a situation that all three major economic regions of the global economy face many difficulties like now.

In 2008, the US economy had problems, while the European and China economies were fine.

In 2010, the European economy was unstable, but the US economy recovered and China was on a good growth track.

In the two years of 2015-2016, China's economy had problems, while the US and Europe recovered strongly from the crisis.

However, now, it is the first time all three major economies have problems. Specifically, the US still faces high inflation. In Europe, inflation and energy prices are problematic. China, on the other hand, is experiencing problems in asset market and the unexpected effects of the zero-COVID policy.

In the world economic model, the US and Europe are like the demand side, and China is like the supply side. So, if only one of the two sides has problems, the global economy will face great difficulties. If these two sides face difficulties at the same time, the risk of a global economic slowdown is even more obvious.

The second factor that will negatively affect the global economy is the consequence of the monetary policy tightening that central banks have applied in recent years to control high inflation. Accordingly, it is not only the problem in the exchange rate, but also the consequence will create great pressure on the economies that pursue an export model or rely on exports to promote economic growth.

In addition, the instability of the asset market in China is also a new hot spot to watch. For the world economy, China is a very important growth country. According to the latest forecast, China's economic growth in 2022 reached only 50 per cent of the target. The reasons are the effect of the zero-COVID policy, the volatility of the asset market affecting consumer sentiment and reducing exports. These are the factors that can adversely affect China's economic growth prospects in 2023.

Many analysts believe that China can fully open up in 2023 after a long period of isolation against the COVID-19 pandemic. It will be a big impact on the world's inflation control in 2023. What do you think about this?

China's opening has a huge impact on the prices of global basic commodities such as copper, aluminum, steel, oil and agricultural products. In fact, China's imports of those commodities for domestic consumption are very small. With the characteristic of being an export economy, if the exports from China to the US and Europe cannot recover, China will boost exports to other markets.

However, the statistics at the end of 2022 showed that China's export growth was at a low level. In November 2022, China's exports fell 8.7 per cent year-on-year, and it was the second consecutive month of decline.

This was also the deepest drop in China's exports since February 2020 - the peak of the outbreak of COVID-19 in China.

These numbers showed that the real difficulty comes from the monetary policy tightening of the US and EU that have had an immediate impact on large export-based economies like China.

Besides, the world's inflation problem also comes from the conflict between Russia and Ukraine because this has caused the world to face an energy price crisis. Therefore, the world's inflation in 2023 depends not only on China's opening up, but also on solving the world's energy crisis.

How will Việt Nam's economy face these big challenges to maintain economic growth?

I think that Việt Nam is facing a big challenge from the outside, which is a huge decrease in demand for Vietnamese exports.

In fact, the growth rate of Việt Nam's many export commodities gaining turnover of over US$1 billion, such as wood and garment products, in October and November 2022 decreased by 30-40 per cent compared to the same period last year and to the previous month.

This showed that the foreign market is no longer attractive enough for exports in 2023. Meanwhile, the decline in exports will bring many problems, especially poverty, lack of work, and an increase in unemployment in industrial zones.

In addition, Việt Nam also faces two internal challenges. Firstly, the handling of violations in both the bond market and the banking system is creating bottlenecks in capital flows.

Meanwhile, the cost of capital is one of the barriers for businesses in approaching capital. This difficulty requires the Government to take measures on removing it, helping businesses access capital as quickly as possible with an appropriate interest rate.

Besides, Vietnamese exporters also have great opportunities to get orders from partners that did business with Chinese businesses before in the context of China applying the zero COVID policy.

That partly also made the supply chain's move out of China to Việt Nam faster, like the move of Foxconn, Apple, Adidas or Samsung. In fact, in Southeast Asia, Việt Nam is emerging as one of the locations where large corporations choose to build research and development (R&D) centres.

To take advantage of the external advantages, Việt Nam needs to have synchronous solutions, including the building of a better industrial infrastructure and office systems.

Another important solution is to deal with the problems of the bond markets and banking system. In particular, fiscal policy needs to play a bigger role in opening up more opportunities for economic development as well as take advantage of the situation that other affected economies do not recover.