Vietnam’s economic growth continues to face challenges in the form of a slowdown in industrial production and a decline in exports due to weak foreign demand and global uncertainty, the June issue of the World Bank’s Vietnam Macro Monitoring shows. .
The industrial production index (IIP) recorded a meager year-on-year increase of 0.1% in May, down from 0.5% in April. By contrast, retail sales remained robust, expanding by 11.5% year-on-year, reflecting the growth rate observed in April.
While sales of goods improved from 9.7% yoy in April to 10.9% in May, sales of services experienced a significant decline, falling from 19.2% yoy in April to 7.6% in May, reflecting the impact of prevailing uncertainties on consumer spending.
In trade terms, exports of goods suffered a major setback, falling by 6% compared to the previous year, mainly due to weak foreign demand. Simultaneously, imports fell 18.4% year-on-year in May, reflecting the prolonged slowdown in demand for foreign inputs needed for production and exports.
“If global financial conditions tighten further, foreign demand could weaken further,” the report notes.
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In the midst of these economic challenges, inflation measured by the consumer price index (CPI) registered a decrease for the fourth consecutive month. In May, the CPI declined from 2.8% year-on-year in April to 2.4% year-on-year in May, driven by falling world energy prices and lower domestic transport costs. However, core inflation remained elevated, at 4.5% yoy in May, slightly below the 4.6% yoy rate in April.
The industrial production index (IIP) recorded a meager year-on-year increase of 0.1% in May, down from 0.5% in April. By contrast, retail sales remained robust, expanding 11.5% year-on-year, reflecting the growth rate seen in April
Foreign direct investment (FDI) commitments also slowed last month as prevailing global uncertainty weighed on investor confidence. However, FDI disbursements remained stable at USD 1.8 billion, a figure comparable to the same period of the previous year.
To stimulate the economy, the State Bank of Vietnam (SBV) took steps to ease monetary policies. The refinancing interest rate was reduced from 5.5% to 5%, and the overnight loan facility from 6% to 5.5%. This is the third consecutive rate cut since March 2023.
“However, the authorities should remain vigilant against possible pressures on capital flows and the exchange rate from divergent monetary policies between Vietnam and other countries,” the World Bank analysts suggested.
Credit growth continued to slow, falling from 9.2% yoy in April 2023 to 9% yoy in May, reflecting weakening demand.
On the other hand, the monthly budget balance registered a significant deficit of approximately USD 2 billion in May. This deficit can be attributed to a decrease in revenue collection of 35.8% year-on-year, mainly due to the one-off effects of high post-COVID revenues in 2022 related to land sales, real estate transactions, and income tax collection. the added value. On the other hand, public spending increased by 27.8% year-on-year in May.
The challenges facing the Vietnamese economy require careful monitoring and proactive measures, according to the report, adding that the potential power shortage in the northern region, which began in late May, will require urgent attention to avoid further impact. In the economy.
On the other hand, accelerating the disbursement of public investment, particularly for national programs, would strengthen aggregate demand and foster economic growth in the short term. Furthermore, prioritizing investments in digital and green technologies, infrastructure development and human capital would promote long-term sustainable development.
As manufacturing exports have slowed and employment in the manufacturing sector has been affected, it would be important to rapidly identify and support affected workers and families through the social protection system. Streamlining administrative procedures and removing regulatory hurdles will help promote business activities and investments necessary for economic growth, he added.
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