Vietnam's economy recovers quickly thanks to drastic actions

The International Monetary Fund assessed that Vietnam's economy in the first half of 2024 is on track for a rapid recovery, with growth increasing to 6.4% over the same period last year.

Export garment manufacturing at Tinh Loi Garment Company, Hai Duong .

In a recent interview with VNA reporters in Washington DC, Mr. Paulo Medas, Head of the Vietnam Macroeconomic Consultation and Monitoring Mission of the International Monetary Fund (IMF), assessed that Vietnam's economy in the first half of 2024 is on track to recover rapidly after the difficult period in late 2022 and early 2023.

According to Mr. Paulo Medas, Vietnam continues to integrate and the economy has really recovered with growth increasing to 6.4% compared to the same period last year.

Vietnam’s economy is recovering faster than expected, thanks in part to strong exports and foreign direct investment. Another factor is the effectiveness of actions taken by the government and the State Bank of Vietnam , such as interest rate cuts, increased public investment and wage increases, which have also contributed to the rapid recovery of Vietnam’s economy.

Assessing the outlook for the second half of 2024, Mr. Medas expects Vietnam’s economy to continue to recover. The growth rate for the whole of 2024 will slow down somewhat, mainly because the economy has recovered since late 2023 and accelerated strongly in the first half of 2024.

The IMF forecasts growth in 2024 to be slightly lower than in the first half of the year, but still above 6% overall.

On inflation, Mr. Medas said Vietnam's inflation has increased and is currently at about 4.3% year-on-year in June.

The IMF forecasts that the inflation rate will likely remain close to the State Bank of Vietnam's target of 4.5%.

However, there are still risks as the Vietnamese dong depreciates. Rising public sector wages could lead to further inflation risks. Therefore, Mr. Medas said it is very important that the State Bank of Vietnam continues to monitor closely, as regulatory measures may be needed.

Assessing the scenario of high interest rates being maintained for a long time in many countries around the world, Mr. Medas said that this could happen because inflation in the US and Europe is not progressing as quickly as expected.

Therefore, if interest rates continue to be kept high, economic growth in these countries will slow down and this will negatively affect Vietnam's economic growth in the second half of 2024 due to a slowdown in Vietnam's exports to these countries.

On the other hand, Vietnam is keeping interest rates very low to support economic recovery. If global interest rates remain high, this could put more pressure on the Vietnamese dong to depreciate further.

Therefore, if these pressures continue, it could lead to a higher risk of inflation. This means that the State Bank of Vietnam will have to monitor carefully and take action when necessary.

Regarding difficulties for Vietnam's exports in the second half of 2024, Mr. Medas assessed that in recent years, export growth has been unstable due to the increasingly volatile world situation and many shocks.

In the first half of 2024, Vietnam has seen a recovery in exports due to positive impacts from the US and global economic situation in general. However, there are also risks.

The main risk, according to the IMF, is that if the global economy does not grow as expected, it will hurt exports. In addition, all the conflicts around the world could also increase the cost of trade.

For example, the Middle East issue has increased the cost of shipping goods and shipping, which has had a major impact on the costs of Vietnamese businesses. However, the IMF still expects a good year for exports, in addition to risks from global conditions.

Regarding policy recommendations for Vietnam to overcome current challenges, Mr. Medas said that the government has taken quite drastic measures to help the economy grow after the shocks in 2022 and early 2023.

This is important and should continue, he said. However, Vietnam needs to balance economic recovery with inflation risk management. Mr. Medas said the State Bank must closely monitor the situation and be ready to act in case inflation rises.

On the other hand, Mr. Medas said that Vietnam needs to pay attention to economic growth in the medium term. The IMF is conducting a more in-depth study on what might happen to medium-term growth in Vietnam.

According to Mr. Medas, in the past 15-20 years, the Vietnamese economy has really developed strongly. Vietnam's growth is higher than the average of emerging markets in the world, is really achieving amazing efficiency and is moving towards good policies.

However, there are factors that are changing such as demographics. Vietnam benefits greatly from a growing young population. However, Vietnam's population is starting to age and will slow down growth in the future.

Another issue affecting growth prospects is climate change. These are major factors that will affect future economic growth.

Another important area that the IMF recommends for Vietnam is productivity. Vietnam’s productivity growth continues to lag behind the rest of the world. Therefore, reforms to increase productivity could offset future demographic problems.

One of the other areas that the IMF has discussed with the Vietnamese Government is about implementing more reforms, such as improving the business environment, improving infrastructure, including energy and renewable energy.

Mr. Medas said that these are really important things that the Vietnamese government has been doing, but needs to continue to do, especially accelerating climate reforms.

Another important aspect for growth that Mr. Medas recommended is that Vietnam needs a good capital market. According to him, the stock market and corporate bond market need good institutions and transparent economic governance to operate effectively.

He said the Vietnamese government has started a reform process to develop the capital market. If Vietnam is successful and has a strong, efficient and transparent banking system, Vietnam can better allocate savings to high-productivity businesses and this will boost growth.

IFM experts believe that these are some important reforms for Vietnam to improve productivity in the coming time.

Source: VNA

Source: https://baophutho.vn/chuyen-gia-imf-kinh-te-viet-nam-phuc-hoi-nhanh-nho-nhung-hanh-dong-quyet-liet-215221.htm