In its latest report in May 2022, the World Bank stated that Vietnam’s economic recovery is gaining momentum despite heightened global uncertainty related to the protracted war in Ukraine, higher commodity prices, and tightening global financial conditions. World Bank experts suggested Vietnam diversify trade partners to mitigate risks and ensure continued export growth.

Retail and tourism recover

According to the bank, retail sales growth accelerated from 10.4 percent year-on-year in March to 12.1 percent in April as firming domestic demand was further buoyed by increased spending during two long national holidays and the return of foreign tourists. “Except for the abnormally high growth in April 2021 due mostly to a low-base effect, this is the first time that retail sales have closed in on their pre-pandemic growth rates,” noted the report. This remarkable performance reflected both robust growth in sales of goods (up 12.4 percent year-on-year) and a strong rebound in consumer services, which grew 11 percent in April, almost double their growth rate in March. The consumer services recovery was driven by booming sales of accommodation and catering services (up 14.8 percent year-on-year). About 101,000 international visitors arrived in April, the highest figure in two years. The report pointed out the robust growth of industrial production by 9.4 percent in April, comparable to pre-pandemic rates. Manufactures of apparel, footwear, electronics, electrical equipment, and metal products were the most dynamic sub-sectors, registering double-digit growth rates, it added. However, machinery manufacturing slowed from 26.6 percent year-on-year in March to only 5.1 percent in April. This deceleration was related to supply chain disruptions caused by lockdowns in China, which led to a sharp fall in machinery imports from this market in the last two months, according to the report. Export growth accelerated from 17 percent in March to 25.2 percent in April, while import growth inched slightly from 14.6 percent to 16.5 percent. However, World Bank experts also noted that because Vietnam's exports are highly dependent on raw materials and components imported from China, a prolonged supply chain disruption could negatively affect Vietnam's exports in the coming months.

Cautious about inflation

World Bank experts said the consumer price index (CPI) inflation increased from 2.4 percent in March to 2.6 percent in April. Compared to one year ago, the petrol price is nearly 50 percent higher and so this continues to be the biggest contributor to inflation from the transport group. Food prices in April increased by 1.1 percent, equivalent to the rate in March. Core inflation, which excludes prices of food, foodstuffs, energy and other state-managed commodities, also increased from 1.1 percent in March to 1.5 percent in April, the highest rate since December 2020. In light of Vietnam’s positive economic performance, the bank suggested the Vietnamese government be vigilant about inflation and risks to continued strong exports. Both food and core inflation have continued to tick up, warranting close monitoring, the report said. “If inflation persists in the medium term, the economy should be allowed to adjust to higher prices with the authorities providing incentives for investments to increase productivity and aggregate supply.” Supply chain disruptions may continue to raise import prices and worsen the terms of trade, which already deteriorated significantly in the first quarter of 2022. The US, EU, and China, the three largest trade partners to Vietnam, are expected to experience slower-than-anticipated growth in 2022, potentially affecting the country’s export prospects, according to the report. Meanwhile, China is Vietnam’s second-largest export market and biggest source of imports, the full impact of lockdowns in China on Vietnam’s manufacturing and exports will be felt in the coming months. “This suggests that diversifying trade partners would be a prudent strategic consideration to mitigate risks and ensure continued export growth,” the bank suggested./.