Vietnam’s upbeat growth outlook is bucking the slowing trend elsewhere in Asia, with relatively subdued inflation as an exception to the regional rule, the International Monetary Fund said Tuesday.
The IMF recently raised its Vietnam growth forecast to 7% this year, lifting it by a full percentage point from three months earlier as the only significant upward revision among major Asian economies.
Growth estimates for Asia were lowered to 4.2% for this year in the IMF’s latest World Economic Outlook Update.
Vietnam’s inflation pressure has been mostly limited to some goods like fuels and related services like transport. In the January-August period, on average, Vietnam's consumer price index climbed up 2.58% year-on-year, while the central bank’s target for this year is 4%.
But Vietnam’s recovery faces headwinds from global growth decelerating from 6.1% last year. The IMF’s World Economic Outlook lowered estimates to 3.2% this year amid the effects of Russia’s invasion of Ukraine, and the slowdown in China and major advanced economies.
"Such a slowdown implies reduced demand for Vietnam’s exports, especially from key trade partners like the U.S., China, and the European Union," read the new report, named Vietnam Bucks Asia's Weakening Growth Trend.
In addition, financial conditions are tightening as interest rates in the U.S. and other advanced economies rise to curb inflation. That in turn increases financing costs and can lead to capital outflows, as seen in many emerging markets in the region.
Greater uncertainty about global trade and financial markets could also weigh on the recovery, especially if some industries lose access to needed intermediate goods because of further supply-chain disruptions.
"That could curtail foreign investment in Vietnam, slowing production and technological growth. Together, these factors mean policymakers must be agile and make timely changes," it noted.
The report suggested three measures for the Southeast Asian country.
First, fiscal policy should take the lead in aiding recovery, yet flexibly adjusted to evolving economic conditions. Second, the central bank should focus on rising inflationary risks, and communicate that it’s ready to act as needed and remains committed to meeting its inflation target.
Third, authorities should continue addressing bad loans in the banking system and closely monitor for potential risks in real estate markets to safeguard financial stability.
"Even after decades of impressive gains, Vietnam still faces several challenges, and broad economic reforms will be needed for it to achieve its developmental goals," the IMF noted.
On Tuesday, Moody's raised Vietnam's rating from Ba3 to Ba2, meaning the outlook changed from positive to stable.
The upgrade reflects the country’s growing economic strengths relative to its peers and greater resilience to external macroeconomic shocks that are indicative of improved policy effectiveness, the credit rating agency said.
Moody’s expects the outlook would continue as the economy benefits from supply chain reconfiguration, export diversification and continued inbound investment in manufacturing.