Why is measuring economic growth important

Cat Lai traffic junction connects HCM City with provinces in the Southeast region of Viet Nam and the Northern provinces. — Photo hanoimoi.com.vn

Viet Nam is predicted to record positive growth this year, especially in the context of US-China trade tensions that may persist in the coming years.

As a leading financial newspaper run by Japanese media giants Nikkei Inc, Nikkei Asia stated that: “Southeast Asia’s growth leader in 2021 may well be Viet Nam,” during a recent article detailing ASEAN’s GDP forecasts for the year ahead.

According to Nikkei, the country recorded economic growth of 2.9 per cent last year due to its success in containing the novel coronavirus (COVID-19), in addition to robust exports of electronics and other consumer products, with the nation reportedly targeting a growth rate of 6.5 per cent this year.

Gareth Leather, senior Asia economist at Capital Economics, said that Vietnamese exports should continue to be supported by tariffs imposed by the US on Chinese goods.

He noted that: “To avoid US tariffs, importers have shifted demand from China to alternative suppliers. With US-China relations likely to remain strained over the years ahead, this trend is likely to continue.”

The newspaper also stressed that before the pandemic, Southeast Asia achieved collective annual growth of approximately 5 per cent over the course of many years, therefore making it one of the world’s best-performing regions in economic terms.

According to media reports, the region has become an attractive investment destination, with a relatively young population that drives demand and provides plenty of manufacturing labour. Although these factors can be viewed as advantages that can boost economic growth, the region’s top priority in the short term is to stamp out COVID-19.

Previously, many Japanese and international newspapers made positive forecasts about Viet Nam’s economic prospects. In the article entitled Overcoming the COVID-19 pandemic, Viet Nam’s economy grows favorably, Dr. Bui Manh Hung attributed Viet Nam’s successful control of the COVID-19 pandemic to three main reasons: absolute trust in the Vietnamese Government’s direction, strict compliance with the Government instructions, and people’s unity and awareness of the dangers of the pandemic, and that has attracted great attention of Japanese readers.

The article said that the COVID-19 pandemic is causing terrible impacts on the socio-economic development of countries around the world and many countries have suffered negative economic growth. But, Viet Nam’s economy in 2020 achieved a surprising growth of 2.91 per cent and is forecast to continue to grow at a high level in 2021, becoming a bright spot of the world economy, according to an article published in Japan’s journal Security Anpo, January edition.

The author quoted Prime Minister Nguyen Xuan Phuc in emphasising Viet Nam’s economic growth of 2020 with a stable macro economy, low-level inflation, positive growth and improved economic balance. Although investment and trade shrank due to the pandemic, the economic growth was still at a high level compared to other countries in the region and around the world.

With its success in pandemic response, Viet Nam has worked out effective policies and measures to restore the economy, according to Security Anpo.

The article highlighted Viet Nam’s success in signing international economic agreements. On November 15, 2020, ASEAN, including Viet Nam and five partner countries Japan, China, India, Australia, and New Zealand signed the Regional Comprehensive Economic Partnership (RCEP). This agreement is expected to promote the formation of global supply chains to contribute to the economic development of member countries including Viet Nam. Previously, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Free Trade Agreement with the EU (EVFTA) was also signed, demonstrating Viet Nam’s determination in implementing its economic commitments.

The author said Viet Nam is attracting great attention from foreign investors. Signing many international agreements, Viet Nam commits itself to create favourable conditions for foreign investors. Many investors from the US, Japan, and South Korea want to move their businesses to the Vietnamese market or plan to start a business in Viet Nam, the article said.

The author said that there were many forecasts about Viet Nam’s economic growth in 2021. A reputable UK bank forecasted that by 2021, the Vietnamese economy would likely reach 7.8 per cent growth, while Asian Development Bank (ADB) forecasted 6.3 per cent. Many other experts and prestigious economic organisations were also optimistic about Viet Nam’s economic growth in the coming years.— VNS

The Hanoitimes – Since June, nearly 5,000 enterprises have registered to participate in promotional activities organized by Hanoi’s authorities with the combined discount amount of over VND20 trillion (US$861 million).

Hanoi’s Department of Industry and Trade is launching promotional programs to boost domestic consumption and aid the city’s economic recovery process.

Promotional activities at Big C super market. Photo: Le Nam.

Vice Director of the Department Tran Thi Phuong Lan said since June, the agency has received requests from 4,963 enterprises looking to participate in its promotional activities with the combined discount amount of over VND20 trillion (US$861 million).

From now on until the end of this year, the department is set to hold a series of events to boost consumption, including Hanoi’s Promotional Month 2020 in November with major activities of “Consumption Day 4.0; “Connecting Supply – Demand in E-commerce”; “Tourism Promotion Day”; “Promotion Golden Day”, Ms. Lan said, adding these activities are expected to revitalize sectors severely affected by the Covid-19 pandemic.

In fact, these promotional activities have contributed a big part in boosting the retail sales revenue in Hanoi, standing at VND243.9 trillion (US$10.5 billion) in the January – August period, up 9.8% year-on-year.

As many enterprises are struggling with searching for market opportunities amid the Covid-19 pandemic, the municipal Department of Industry and Trade has been organizing supply – demand connection programs to address this issue.

Since the beginning of the year, Hanoi has held six editions of Agricultural Goods Week with the participation of companies from other provinces like Son La, Hai Duong, Nam Dinh, Quang Ninh, Dien Bien, or Hung Yen, among others.

While the events helped bring quality fruits and agricultural products from all over the country to customers in Hanoi, enterprises have had opportunities to cooperate with major retailers such as Big C and Vinmart.

Vice General Director of Central Retail Nguyen Thi Phuong said such programs lay the foundation for Vietnamese goods and products to penetrate international markets once the Covid-19 pandemic is contained.

More importantly, local enterprises would have a better understanding of market demand and adjust their productions accordingly, Ms. Phuong said.

The Hanoi People’s Committee previously announced plan No.84/KH-UBND detailing measures to boost provincial linkage and support goods supply – demand linkage between Hanoi and other provinces and cities in 2020.

This include the hosting of three to five fruits weeks, five programs of goods supply – demand connection, and supporting other localities in organizing 15 – 20 fruit/agricultural weeks.

The Hanoitimes – The top priority at this time is ensuring social security, keeping the macroeconomic environment stable, and supporting businesses that are still in operation.

In case the Covid-19 pandemic is put under control and the global economy returns to its recovery trend, Vietnam’s economic growth in 2021 could be in range of 5.6-5.8%, lower than the government’s target of 6.5%.

Production of VSmart ventilators by Vingroup at Hoa Lac hi-tech park. Photo: Thanh Hai.

Vietnam Institute for Economic and Policy Research (VEPR) made the forecast in its latest Vietnam macro-economic report.

“However, in a less likely scenario, when the spread of new Covid-19 variant turns more serious, domestic economic activities could be disrupted and keep the GDP growth even at a lower rate compared to last year,” warned the VEPR.

Under a second scenario, the hospitality and catering services remain the hardest-hit sector without the return of foreign tourists and domestic demands are limited due to Covid-19 restriction.

The business community, especially the private sector, would see their resilience against Covid-19 weakened as the pandemic stays for the second year. In this circumstance, public investment would continue to be the main force for growth, and keep the GDP growth at 1.8-2%, 0.91 percentage points lower than the growth rate from last year.

Future risks

A GDP growth of 2.91% year-on-year in 2020 put Vietnam among best performing economies, mainly thanks to the government’s effective measures against the pandemic; the signing of new trade agreements (EVFTA, RCEP, UKVFTA); waves of investment movement to disperse risks from US-China trade war and take advantage of investment incentives in Vietnam; and a stable macroeconomic environment with moderate inflation, creating good conditions for the implementation of growth support policies.

However, Vietnam is also facing many risks and challenges in an unstable world economic environment, said the VEPR.

The recurrence of Covid-19 in many countries is accompanied by blockade measures could extend the disruption of the supply chain in 2021, it added, while geopolitical conflicts between large countries can put an open economy like Vietnam into a disadvantage situation.

Besides, the weakness of Vietnam’s economy also comes from internal issues such as high fiscal deficit, low development investment budget; the insufficiently improved health of the banking – financial system; the heavy dependence of growth on the FDI sector; low labor quality; and the stagnated privatization process of SOEs.

Keeping macroeconomic stability stays key

From the beginning of the year to the end of September 2020, the SBV has three times lowered interest rate, the moves which have encouraged commercial banks to provide cheaper loans.

Besides, the VND250 trillion (US$11 billion) credit support package is still being deployed by commercial banks.

“However, the room remained limited to Vietnam to maneuver its policies to such extend for this year, resulting in limited impacts on economic development and protection of social welfare,” stated VEPR’s report.

Due to limited fiscal resources after years of budget deficit, coupled with monetary policy bound to inflation and exchange rate targets, Vietnam cannot pursue macro policies in a similar manner to other countries in the world, namely a large-scale monetary easing, stated the VEPR.

In addition, the Covid-19 pandemic prevention and social security subsidies are also putting great pressure on the state budget.

“The top priority at this time is ensuring social security, keeping the macroeconomic environment stable, and supporting businesses that are still in operation,” suggested the VEPR.

Social security policies still need to be a top priority and need to be implemented quickly, towards the right people, it urged. In particular, the policy implementation needs to pay more attention to workers in the informal sector, those are severely affected by the pandemic and faces many difficulties to access supportive policies.

Meanwhile, the policies to support businesses also need to continue to be quickly implemented, well-targeted to the right subject, closely following the needs of businesses.

The freezing/suspension, exemption or reduction of financial costs for businesses such as loan interest, land rental should continue to be implemented, besides, it is necessary reduce all possible burdens for businesses, said the VEPR.

Even if the pandemic is fully under control domestically, many export-oriented manufacturing and services sectors may face long-term difficulties as Covid-19 has not completely been contained worldwide.

“Therefore, promoting public investment should remain a key measure to support economic growth,” said the report.

In all situations, inflation, interest rates, and exchange rates need to be maintained stably, securing the foundation for economic recovery after the pandemic.

The VEPR suggested the necessity to diversify export/import markets to avoid heavy dependence on some major economic partners.

As Vietnam is looking to move on from the pandemic, VEPR suggested the country should gradually build a fiscal buffer to prevent future shocks.

The Hanoitimes – The development of a Covid-19 vaccine is necessary for the Vietnam’s economy to return to its pre-Covid-19 status.

There is a high possibility that Vietnam’s annualized GDP growth would be around 3.8% this year, close to the government’s target of 4%, according to Pham The Anh, chief economist of the Hanoi-based Vietnam Institute for Economic and Policy Research (VEPR).

Overview of the workshop. Photo: Hai Yen

This scenario is based on an assumption that there would be no resurgence of Covid-19 in Vietnam and all domestic economic activities have returned to normal, Anh said at the launch of the VEPR’s quarterly economic report on July 21.

On the global scale, Covid-19 impacts would linger into the second half of the third quarter, causing negative effects on Vietnam’s exports, manufacturing and services sectors.

“Mining, real estate, catering and hospitality services are among the hardest-hit groups,” Anh added.

In a worse-case scenario that is more unlikely, Vietnam’s economy would grow by only 2.2% year-on-year, largely due to the complicated progression of the Covid-19 crisis globally until the fourth quarter of this year, Anh stated.

Anh noted both cases indicate the dependence of Vietnam’s economic outlook on the global economy, adding a Covid-19 vaccine is a vital condition for the country’s economy to return to its pre-Covid-19 level.

Meanwhile, other factors could be instrumental in Vietnam’s economic recovery efforts, including the implementation of the EU – Vietnam Free Trade Agreement (EVFTA) and the EU – Vietnam Investment Protection Agreement (EVIPA); the acceleration of disbursement of public investment; a new wave of foreign direct investment (FDI) as multinationals look to diversify their supply chains and reduce risks from the US – China trade war; and a stable macro-economic conditions.

Easing monetary policy not an option

While the Vietnamese government has put in place a number of programs to aid the economy, Anh said an easing monetary policy in a large scale just like other economies is not recommendable, as it could lead to the risk of currency devaluation and an unstable investment environment.

“This is particularly important as Vietnam targets to keep inflation under 4% and continue to attract FDI,” Anh commented. “The priority would be to ensure social security, macro-economic stability and support operational enterprises.”

According to Anh, measures such as freezing or waiving fees and taxes are more important than providing direct financial support.

With nearly 31 million workers affected by the pandemic so far, Anh said the government should ensure timely implementation of social security policies. These policies should also cover workers in informal sectors whom current support programs may overlook.

Anh reckoned that public investment is the best solution to boost economic growth for now, however, the government should only focus on major projects with strong spillover effects and avoid inefficient investments.

In this regard, Anh said Vietnam could invest in the development of industrial parks to prepare for a shift of investment capital from China.

“In the short term, such a move would stimulate aggregate demand, and in the long term, the operation of industrial parks would help boost aggregate supply,” he concluded.