Global inflation skyrockets as domestic exports start to feel pinch

Export turnover on a downward trajectory

Inflation and the appreciation of the US dollar has negatively affected global seafood consumption, especially in major markets such as the United States, the EU, China, and the UK, said Le Hang, director of the Center for Training and Trade Promotion under the Vietnam Association of Seafood Exporters and Producers.

The initial six months of the year witnessed US inflation rise to a four-decade high of 9.1%, forcing US consumers to tighten their belts, and dealing a blow to Vietnamese exports, Hang told daibieunhandan.vn on August 29. 

After skyrocketing by 85% in April, Vietnamese seafood exports to the US market came to a standstill in May and witnessed 8% and 30.5% contractions in June and July, respectively.

Furthermore, the 8.9% inflation rate recorded in the EU in July also halted the recovery of demand in the lucrative market. Indeed, seafood exports to the bloc grew by 31% in the second quarter before dropping to 18% in July.

“Some key products still enjoyed a higher export value compared to the same period last year, but they decreased significantly and the growth rate was also lower compared to the previous month,” said Hang.

According to details given by Nguyen Chanh Phuong, general director of the Handicraft and Wood Industry Association of Ho Chi Minh City (HAWA), rising inflation has prompted ordinary consumers in both the EU and US markets to cut their spending on furniture, which in turn has affected the export of wood products. He cited statistics indicating that the export value of woodwork exports started to fall in May before levelling off over the last three months.

Statistics highlight that Vietnamese wood furniture and wood product exports to the US fell by 3.7% in the first half of the year to more than US$4.86 billion. Meanwhile, a quick survey conducted by the Vietnam Timber and Forest Product Association (VIFORES) shows that 24 out of 38 businesses shipping goods to the EU said their current revenue has decreased by more than 41% compared to previous months.

Meeting export targets now an uphill task

Recent surveys reveal the growing concerns relating to inflation and economic recession which have prompted many US and European consumers to start to purchase less, meaning they will spend less if inflation persists. Analysts forecast that the demand for imported goods, including wood products, textiles, and seafood, of these two large markets would decrease in the near future, consequently hitting Vietnamese exports.

In a recent update, SSI Securities Analysis Center forecasts that revenue growth of Vietnamese textile and garment enterprises would decelerate during the last six months of the year moving into 2023. Representatives of the Vietnam Textile and Apparel Association (VITAS) also agreed that, though the sector achieved impressive results in the first half of the year, its export target of between US$42 billion and US$43 billion for this year is a major challenge due to inflationary pressure from major import markets such as the US and the EU.

Typically, exports of wood and wood products often increase in the main markets at the end of the year thanks to high demand for home decorations ahead of New Year celebrations. However, this practice will not be followed amid the shadow of global inflation, with wood processors finding it hard to fulfill the export target of US$16.5 billion for this year.

According to Le Hang, director of the Centre for Training and Trade Promotion, inflation coupled with difficulties in raw materials and market fluctuations will continue to put pressure on Vietnamese seafood exports in the second half of the year. However, the pressure is not as high as seen in other sectors, as seafood exports brought in nearly US$6.7 billion in the initial seven months of the year, while the target set for the year is over US$10 billion.

In the face of weak purchasing power in the EU and US markets, a factor which is anticipated to continue for at least another year, many businesses have begun to consider cutting their capacity and scaling down production. The main difficulty now is how to maintain cash flow and retain employees until inflation subsides.