Economic growth has shown positive signs

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Businesses in manufacturing and trading sectors are currently being supported by Government's various financial and credit policies. Photo: Duc Duy

Improvement in economic indicators

According to the General Statistics Office, amidst the complex and unpredictable global economic and social situation, the Government has proactively implemented various solutions to overcome difficulties, promote growth, maintain macroeconomic stability and major balances, reduce interest rates for loans, stabilize the foreign exchange market; and accelerate disbursement of public investment, resolve difficulties, and support the development of corporate bonds and real estate markets, ensuring social security. As a result, industrial production and exports in May showed positive changes compared to April and the first quarter of 2023. The industrial production index in May increased by 2.2% compared to the previous month. The trade balance for the first five months of 2023 was estimated to have a trade surplus of US$9.8 billion (compared to a trade surplus of US$0.24 billion in the same period last year). Importantly, trade and service activities have also increased significantly compared to last year.

Assessing the economic and social situation in the first five months of the year, Minister of Planning and Investment Nguyen Chi Dung stated that the rate of capital implementation from the State budget in the first five months reached 25.5% of the plan, an increase of 18.4% compared to the same period last year (equal to 24.9% in 2022, an increase of 10.8%). This result was the effort of the Government, ministries, and localities to accelerate the disbursement of public investment to stimulate growth in the context of the domestic economy being affected by general difficulties in the world economy.

Additionally, positive changes were observed in the newly registered foreign direct investment (FDI), which has increased by 27.8% compared to the same period last year, indicating that Vietnam continues to be a potential market attracting foreign investors in the coming time. These signals have indicated the possibility of even more positive economic growth in the second quarter.

However, more than one-third of the year 2023 has passed, and this period was predicted to face "headwinds" that directly impact Vietnam's growth momentum. As a large open economy, it is easily noticeable that these "headwinds" have affected export-import activities, industrial production, finance, and even FDI attraction.

According to Minister Nguyen Chi Dung, the economy still faces many risks and complex fluctuations alongside the achieved results. Social investment and attracting foreign investment are still slow despite showing signs of recovery. The value of goods imported and exported slightly recovered in May, but the accumulated five-month value decreased by nearly 15% compared to the same period. Looking at the import and export figures in the first five months of the year, it can be seen that the import of production materials has decreased by 18.2% compared to the same period last year, indicating a slowdown in domestic production input demand.

"The three biggest difficulties are cash flow, access to loans, the market, and administrative procedures. The Government has proposed many solutions to overcome difficulties, but the Ministry of Planning and Investment believed that comprehensive and coordinated solutions were needed at all levels, sectors, and localities, especially in coordinating fiscal, monetary, and trade policies. Therefore, the Ministry of Planning and Investment has recommended key measures, including monitoring the global situation, resolving difficulties, and supporting businesses and people. The Ministry of Finance needs to manage revenue sources closely, be thrifty in spending, promptly propose fiscal policies, reduce taxes and fees, extend the deadline for excise taxes and registration fees, accelerate value-added tax refunds, and facilitate export-import procedures. The ministry also needs to propose feasible solutions to address the limitations and restrictions of the corporate bond market. The State Bank of Vietnam should manage interest rates, stabilize the foreign exchange market and exchange rates, and review credit packages with timely and favourable loan conditions," proposed Minister Nguyen Chi Dung.

Need more supportive policies

Forecasting economic growth in the coming period, Phung Duc Tung, the director of the Mekong development research institute, believed that it was challenging to find growth opportunities in the second quarter, given the reduced global consumer demand due to the possibility of mild economic recession, high-interest rates in other countries, and inflation significantly affecting Vietnam's exports. Domestic consumption is also decreasing. Tung says public investment is an important driving force for promoting growth, but disbursement has been slow. Overall, there are currently no positive signals, both internally and externally. Therefore, achieving the annual GDP growth target of around 6.5% poses a significant challenge.

To promote growth in the remaining months of 2023, economists suggested using flexible fiscal and monetary tools to cope with the current difficulties. Additionally, focus on three driving forces: exports, public, and foreign investment. Additionally, administrative procedure reform, trade promotion, and finding new markets for products are urgent solutions recommended by the experts.

Dang Xuan Thanh, the representative of the Vietnam Academy of Social Sciences, evaluated that the current context has raised the urgent need to place the upcoming focus on policies to maximize growth or minimize the risk of recession. Given the supply-demand imbalance caused by the current supply shortage, the effectiveness of monetary and fiscal stimulus measures could potentially exacerbate the supply-demand gap if the combination of both policies is not properly calibrated. If the economy continues to be stimulated through various channels, such as private investment and consumption, to drive growth, there is a risk of exceeding the inflation target. Another scenario could involve implementing necessary measures to minimize economic decline, followed by timing the operation of monetary and fiscal policies to revitalize the economy. The choice of policy focus plays a crucial role in enabling the domestic economy to cope with the volatility of the global economy shortly.

According to Thanh, the disbursement of public investment capital is currently a top priority to address the economic difficulties and challenges. The current public investment capital still has the potential to be further promoted to solve the wide-ranging difficulties the economy faces, especially when foreign investment sources are clearly declining.

However, there are a few points to consider when implementing this solution. Firstly, as public investment disbursement is a fiscal policy tool, the increased impact on aggregate demand will be evident. This may increase inflation risk when public investment capital is disbursed. Therefore, efforts to prevent inflation should be heightened during public investment disbursement.

Secondly, the issue of freeing up clean land remains a long-standing challenge associated with public investment in infrastructure. Therefore, the disbursement of public investment is closely linked to the formation and development of the real estate market, especially in areas with transportation systems. Information related to public investment projects should be communicated clearly and transparently to the public to ensure a stable and sustainable real estate market in conjunction with the process of public investment disbursement.