General situation in the world
Talking about the effects of the Omicron variant, Mr. Painchaud said that this strain is currently the main Covid-19 strain in many countries including Vietnam according to the IMF’s forecast in January 2022. While many countries including Vietnam have considered Covid-19 as an endemic disease, in China, some anti-epidemic measures are still very heavy and strict. This has a great impact on Vietnam because China is a large export market, and also an import market for intermediate materials for the production process in our country.
In addition, the geopolitical tension between Russia and Ukraine leads to the increase in prices of goods, food and raw materials. As a result, inflation in many countries increased because of the sharp increase in commodity prices as well as the Covid-19 story affecting supply. The IMF assessed that the consequences of price increases could last until 2023. Inflation in both developed and developing economies will be higher than the IMF forecast. Mr. Painchaud said that in developed economies such as the US or Europe, inflation increased rapidly, at the highest level in the past 40 years.
These are also the two main reasons that the IMF recently lowered the growth forecast of the world as well as many other countries, including Vietnam, compared with the forecast in January 2022.
Vietnam’s economic outlook 2022
Vietnam has officially reopened with very high vaccine coverage and timely economic recovery policies. Mr. Painchaud highly appreciated the measures to support the recovery so far. Despite many difficulties, Vietnam has had successes in stabilizing the fiscal, external economy and financial market.
Regarding the labor market, the IMF assessed that the group of young workers and the group of unskilled workers are the two groups that are suffering many disadvantages. The unemployment rate increased while the labor force decreased compared to the previous time. According to Mr. Painchaud, households as well as small and medium-sized businesses have been strongly affected by Covid-19 but larger businesses are still able to recover. This can lead to an increase in inequality between these groups.
Talking about the impact of the Russia-Ukraine conflict on Vietnam, Mr. Painchaud said that through many different channels, this conflict affects Vietnam, including rising commodity prices, increasing inflation, financial trade connection activities, reduced demand from the external sector and supply chain disruptions. Accordingly, these factors may adversely affect the Vietnamese economy.
On that basis, the IMF makes a forecast for Vietnam’s economic growth of 6% in 2022 and 7.2% in 2023. Vietnam’s inflation rate in 2022 is forecasted to reach 3.9%, very close to the previously set control target of 4%.
Policy recommendations
In the short term, the IMF recommends that policy setting be quick and flexible. Fiscal policy needs to be supported to coordinate the transformation of the economy.
Mr. Painchaud recommended: “Currently, monetary policy is showing a certain support capacity, but it is limited in the future, it is clear that the State Bank needs to tighten monetary policy more than the initial target. Therefore, fiscal policy must take the lead, combined with monetary policy in supporting households and businesses in the future.”
Over the medium term, the IMF recommends rebuilding fiscal buffers and revenue mobilization, strengthening social security, enhancing monetary policy flexibility, and increasing the resilience of the banking system.
