Vietnam’s economy registered strong growth in the third quarter of this year, largely reflecting the low base effects, according to the World Bank (WB).
Source: Vietnam Finance
The bank said in its “Vietnam Macro Monitoring” report released on October 20 that Vietnam’s GDP grew by 13.7% year-on-year in the third quarter of this year and 8.9% over the first three quarters.
The report shows that industrial production and retail sales posted another month of high growth rates (13.0% and 36.1% year-on-year) which could be attributed both to strong economic activities and to the low-base effects.
Both exports and import growth moderated in September due to weakening demand from major export markets. FDI commitment fell in September, affected by the heightened uncertainty about the global economic prospects while FDI disbursement continued to improve, the report says.
Despite softening energy prices, CPI inflation accelerated from 2.9% in August to 3.9% in September largely due to higher education costs and rents. Core CPI inflation accelerated as well, from 3.1% in August to 3.8% in September. The terms of trade deterioration eased in the third quarter compared to the previous three months.
Credit growth accelerated from 16.2% in August to 17.2% in September as the State Bank of Vietnam (SBV) raised credit growth limits on some commercial banks.
The Vietnamese dong continued to depreciate against a strengthening US dollar in September (1% month-on-month and 3.8% year-on-year). To stabilize the domestic currency, the SBV raised two key policy interest rates and the cap on key short-term rates on deposits denominated in local currency by 100 basis points, the first rate hike since April 2020. The budget balance posted a $0.5 billion deficit in September for the first time in 2022, but still registered a $10.5 billion surplus over the first 9 months of the year. Given the budget surplus, year-to-date government bond issuance reached only 28.7 % of an annual plan, compared to 67.9% in 2021.
According to the report, while the economic recovery has remained strong, heightened uncertainties related to the slowing global economy, rising domestic inflation, and tightening global financial conditions warrant increased vigilance and policy agility.
Given the economy has not fully recovered and growth in main export markets is expected to slow, continued active fiscal policy to support the economy should be closely aligned with economic outcomes and coordinated with monetary policy.
At the same time, as CPI and Core CPI are reaching 4% – the policy rate set by the authorities – monetary authorities should be ready to consider further tightening of monetary policy to ensure inflation remains anchored.
Given the end of forbearance and tightening financial conditions, the financial sector faces heightened risks, and prompt SBV guidance would help stem the materialization of such risks at the sector level, potentially affecting the real economy.
The recent turmoil around the Saigon Commercial Bank (SCB) case highlights the need for increased transparency through the timely publication of detailed information about the banking sector performance, enhanced corporate governance, strengthened risk-based supervision, including supervision of business groups and related party lending and early intervention, and an enhanced bank resolution framework.