Vietnam’s economic recovery remains strong despite the protracted war in Ukraine, higher commodity prices, supply chain disruption caused by Covid-19 lockdowns in China and tightening global financial conditions, the World Bank stated Monday.
Industrial production continued robust expansion in May, rising 10.4% year-on-year, while retail sales rebounded with 22.6% growth, suggesting strong recovery of private consumption, according to the bank.
Retail sales bounced back sharply, rising by a record 22.6% year-on-year in May, compared to the 12.7% in April.
“This acceleration is partly due to a low-base effect as sales had dropped by 2.1 percent in May 2021 following the Covid-19 outbreak in the previous month and subsequent mobility restrictions.”
To a larger extent, however, this growth in sales reflected solid domestic private consumption and the return of international tourists after the government opened the borders in late March 2022, the World Bank noted in its report named Vietnam Macro Monitoring.
Sales of consumer services, which were hit harder than the sales of goods last year experienced a stronger rebound, up 41% year-on-year in May this year compared to the 18.3% increase of the same period last year.
The consumer price index edged up from 2.6% in April to 2.9 percent in May, driven by a rise in gasoline and diesel prices, which were 54.5% higher in May than a year ago.
Credit growth remained strong at 16.9% year-on-year. Thanks to strengthening domestic demand, total revenue collection increased by an estimated 29.4% year-on-year in May, keeping the budget in surplus for the fifth consecutive month.
Nevertheless, the World Bank noted authorities should be vigilant about inflation risks associated with rising prices of fuel and imports, which may dampen the ongoing recovery of domestic demand.
“With the price shock mainly affecting fuel with passthrough to costs of transportation, targeted temporary subsidy for main gasoline and fuel users (such as truckers) could also be considered to alleviate hardship and blunt inflationary pressures.”
Besides, the government could incentivize investment to help increase aggregate supply. Incentivizing alternative energy production and use would reduce the economy’s dependence on imported fuel and promote greener growth, the bank added.
The World Bank on June 7 raised Vietnam’s GDP prediction this year to 5.8% from 5.3% in its April forecast. This is a significant improvement against its previous forecast of 4% for Vietnam’s GDP in 2022 in the worst-case scenario.
The revision is derived from a revival of activity supported by the removal of Covid-related restrictions in the country, the bank's Global Economic Prospects report noted. “Vietnam's economic expansion is expected to strengthen further to 6.5% in 2023 and 2024.”
Credit rating agency S&P Global Ratings in late May revised up Vietnam’s long-term sovereign credit rating to BB+, a "stable" outlook. Vietnam is one of only two economies in the Asia-Pacific region to have been upgraded since the beginning of the year, the other being Taiwan.
The S&P upgrade was based on Vietnam’s steady economic recovery prospects following the progressive lift of domestic and cross-border mobility restrictions, outstanding improvement in vaccination rates, and flexible shift in Covid-control policy. The agency predicted Vietnam's real GDP growth of 6.9% in 2022, with a long-term trend of 6.5-7% from 2023 onward.