Vietnam’s Macroeconomic Policies-Third Quarter 2018 under scrutiny

Addressing the event, VERP President Nguyen Duc Thanh briefed participants on the world and Vietnam's macroeconomic report in the third quarter of 2018.

According to the report, the global economic growth is projected by IMF to remain high this year, at about 3.9%. One thing that does standout is that the US economy continued to grow impressively thanks to increased private spending and the US government’s fiscal expansion.

High growth rate for the US however may cause the Fed (Federal Reserve) to continue raising interest rates and thus reduce capital inflows into developing countries, especially for nations with weaker macro-economic fundamentals or political risks.

Japan and EU economies faced slowdown. Except for China, BRICS whose economy continues to grow year after year. China's economy is slowing down now partly due to its trade war with the US, but it is less likely to fall into crisis.

There is plenty of room for China's monetary policy (such as low inflation, 2.3% yoy in August; cash reserve ratio remains high, 15.5%; policy interest remains positive, 4.35%; large foreign reserves, over US$3 trillion and so forth). These indicators will support China in dealing with external shocks.

The report noted that it is highly possible the surge in crude oil prices, currency depreciation and trade tensions among larger economies could have a negative effect on developing countries economic growth. Under such circumstance, consumption price may soar worldwide, again affecting developing countries the most. Inevitably, interest rates will then have to be raised to cope with the situation and thus resulting in a downward trend in the financial markets.

The report pointed out that Vietnamese economy will suffer multi-dimensional impacts due to the world economy’s developments. First, despite the potential trade confrontation directly with the US, Vietnam’s trade balance may be indirectly affected via the trade relationship the U.S. has with China.

In addition, the fact that VND is tightly pegged to the USD also causes Vietnamese goods to be less competitive. Being so close to the USD truly is a juxtaposition for the Vietnamese economy.

Secondly, capital inflows also face adverse impacts as the Fed continuously insists on raising policy interest rates. Moreover, the Fed’s interest rate hike also exerts pressure on interest rates of the domestic currency to stabilize the exchange rate and prevent inflation.

According to economist Pham Chi Lan, the business climate in Vietnam has seen little improvement in recent times as many cumbersome administrative procedures are major obstacles for Vietnam’s economic development.

Vietnamese businesses still face a number of challenges to seize opportunities presented by the Fourth Industrial Revolution and enjoy benefits from the Free Trade Agreements (FTAs) such as the European Union-Vietnam Free Trade Agreement (EVFTA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Lan added.

At the workshop, economic experts also touched upon major issues pertaining to market economy status for Vietnam in 2018, investments in training highly qualified workforce, and radical legal reforms to facilitate businesses’ operations in the coming time.