Many economies around the world are facing the risk of economic growth declining, but some countries are different, such as Vietnam.
In this month’s report, the ASEAN+3 Macroeconomic Research Office raised Vietnam’s economic growth forecast to 7%, higher than the government’s early forecast of 6-6.5%. This is consistent with the International Monetary Fund’s previous forecast, while Standard Chartered Bank expects Vietnam’s GDP to grow by 7.5% in 2022. Vietnam’s actual data seems to be responding to the favor of external institutions. The third quarter GDP announced earlier increased by 13.67% year-on-year, which is an excellent result. The latest industrial production index for the first 10 months is also very positive. Preliminary estimates indicate that industrial production in October increased by 3% month-on-month and 6.3% year-on-year. Industrial production in the first ten months increased by 9% year-on-year, significantly ahead of the 3.8% growth in the same period last year. The data appear to paint a picture of a thriving Vietnam, in stark contrast to global distress. But is Vietnam’s economy really that good?
The reality behind the data
Vietnam’s economy relies heavily on reprocessing, importing raw materials or primary manufactured goods from other countries, and then exporting them to Europe and the United States through local rough processing, earning a lot of hard work. This model was knocked to pieces during the epidemic, which also made Vietnam’s economic data in the past two years not very impressive, especially in the third quarter of last year, when GDP fell by more than 6% year-on-year. The high GDP growth rate of 13.67% in the third quarter of this year was based on the negative growth in the same period last year. In other words, this prosperity data is actually watered down. From the perspective of industrial production, although the output of some key industrial products in Vietnam rebounded in the first 10 months of this year, such as mobile phone components, which increased by 16.5%, a closer look showed that its mobile phone output fell by 5.1%. Vietnam has been a key country for mobile phone manufacturers in recent years, and the contrast in this data is filled with an ominous atmosphere. Looking at the entire industrial data, Vietnam’s growth momentum has also begun to weaken recently. Except for January 2022, Vietnam’s industrial production growth this year has remained above 9%, but the growth rate in October fell below 9% and dropped directly to 6.3%.
Exports are weak
The recent slowdown in Vietnam’s manufacturing industry is closely related to exports. In October, Vietnam’s export volume was US$30.27 billion, which rebounded from the previous month but dropped by 13.3% from August. Nguyen Thanh Can, chairman of luggage manufacturer Virtue King Vietnam, told the media that although Christmas is coming, overseas orders have dropped by 20-30% year-on-year, with Europe and the United States experiencing the largest declines, while Canada, Japan, South Korea and other regions have also reduced purchases. . A footwear manufacturer in Ho Chi Minh City said that the company’s orders dropped by nearly 30% compared with last year. Vietnamese Prime Minister Pham Minh Zheng said that Vietnam needs to increase exports by diversifying markets and products, and that the government and domestic companies need to cooperate with foreign investment companies to promote exports. But it’s a cold winter abroad now.
Strong dollar
The strong US dollar is one of the hidden pains of Vietnam’s manufacturing industry. Tran Viet Anh, vice president of the Ho Chi Minh City Federation of Business Associations, said that as European countries experience a cold winter with reduced energy supplies, customers spend less on new shoes and clothes, reducing Vietnam’s exports. Some analysts further explained that the fall of the euro against the US dollar also affected the sentiment of European buyers, thereby reducing overseas trade and hitting Vietnam’s manufacturing industry. For Vietnamese companies that rely on imports, the strong U.S. dollar is also increasing the burden on them. The bubble tea industry said that 90% of its raw materials are imported from South Korea and Taiwan, China, and they need to replenish goods almost every month, and the transaction currency is generally the US dollar. He complained that the appreciation of the dollar had increased his costs by about 10%, but he could not raise prices because raising prices would lead to the loss of customers.
energy crisis
Another associated problem is the rise in fuel prices. Although the Vietnamese government has repeatedly emphasized that energy is sufficient, frequent news of fuel depletion in October is undermining the credibility of this argument. In late October, several gas stations in the Mekong Delta reported running out of gasoline, and people in the area had to travel 10 kilometers to find a gas station with gasoline. Gas station owners also added that they were not sure when supply would be restored. Ho Chi Minh City is also struggling in a gasoline black hole. Many of the city’s 550 gas stations have closed due to lack of gasoline and diesel. It is said that about 10% of the city’s gas stations remain open but cannot provide fuel. The energy crisis also threatens the company’s production, and coal, the main fuel for its power supply, cannot be stably supplied due to sporadic local outbreaks. The issue of power outages is not even a special issue this year. In recent years, Vietnam has been in a state of insufficient power supply due to the rapid development of manufacturing and the backward energy structure. This will even be an important factor limiting Vietnam’s manufacturing industry in the next few years. Despite its reputation, Vietnam’s economy is experiencing frequent alarms. Data shows that a large number of companies in Vietnam are leaving the market. Behind the rapid economic growth in the first nine months, 13,820 local companies announced their dissolution.
</p
