Vietnam grapples with economic headwinds in H1

Created 26 July 2022
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Rising inflation and tumbling stock markets have been causing headaches to government leaders striving to revive the economy after Covid-19.

Vietnam grapples with economic headwinds in H1

Rising inflation and tumbling stock markets have been causing headaches to government leaders striving to revive the economy after Covid-19.

Surging consumer prices are a common topic of discussion everywhere from dinner tables to government meetings, with the public complaining of a gap between official and actual inflation figures.

While the prices of eggs, vegetables, delivery, and construction materials have seen double-digit increases, the consumer price index rose by a mere 2.4 percent in the first half of the year, according to the General Statistics Office.

With gasoline prices soaring by 27 percent since this year, the government has been cutting taxes to keep them under check.

It has cut the environment tax on gasoline by 75 percent this year to VND1,000 per liter.

Another problem for policymakers is keeping banking credit under control.

The State Bank of Vietnam (SBV) has capped credit growth at 14 percent this year but banks have sought an increase.

The central bank has been seeking to keep credit growth down to head off inflation.

A person shops at a market in Thu Duc City in June 2022. Photo by VnExpress/Quynh Tran

The tumbling stock market was another area of concern in the first half.

There were several major arrests related to stock market manipulation and bond issuances, which dampened investor sentiment.

The benchmark VN-Index has lost 20 percent this year, and trading is well below last year’s levels.

The chairmen of property developers FLC and Tan Hoang Minh, Trinh Van Quyet and Do Anh Dung, were arrested in March and April for alleged fraud.

Speculative stocks have been plunging as a result.

While these arrests raised concerns among investors, they show that the government is paying attention to ensuring rule of law, which would benefit the market in the long run, Le Duy Binh, CEO of business consultancy Economica Vietnam, said.

"When the market is well regulated, companies that abide by the law can contribute more to economic growth."

Prime Minister Pham Minh City said at an economic forum in June that fluctuations in the market are normal when violations are dealt with, and timely intervention would help the market become more transparent and stable.

The government faces difficulties in sustaining growth in the second half.

The rising global energy prices remain Vietnam’s biggest growth risk, Ngo Dang Khoa, country head of markets and securities service at HSBC Vietnam, said.

Another challenge is the supply chain disruption in China, which makes it difficult for Vietnamese companies to source materials and this could have an impact on exports, he said.

Containing inflation remains a major problem.

Analysts at securities brokerage VNDirect forecast that food prices could continue to rise this year due to high delivery costs.

"Companies could raise prices to cover expenses and therefore we forecast inflation to rise in the coming months."

But they added that the price rise is likely to remain below the government’s 4 percent target.

Binh said stable growth is more important than high rates, adding that the 7 percent GDP growth target the government mentioned earlier this month is appropriate considering the low base last year.

Minh Son, Phuong Anh


Source: VNE