Vietnamese merchandise trade balance remains in surplus in Q1
VOV.VN - Vietnam’s merchandise trade balance recorded a surplus of US$1.4 billion in March, while FDI commitments and disbursement remained resilient amid global uncertainties over the Russian invasion of Ukraine, according to the April edition of the World Bank's monthly Vietnam March Monitoring.
In line with this, the country’s GDP grew by 5.0% on-year in Q1 thanks to the solid performance of the export-oriented manufacturing and recovering service sector.
Furthermore, the industry and construction and services sectors grew by 6.4%, and 4.6% on-year, respectively, contributing 4.3 percentage points to quarterly GDP growth. This growth of industry and construction was largely driven by strong external demand for manufactured products, while the services sector’s performance varied across various sub-sectors.
Finance, banking, insurance, and information and telecommunications were exceptionally resilient over the past two years, maintaining solid growth in the process. In contrast, accommodation and catering services were 1.8% lower compared to a year ago, well below their pre-pandemic level.
The labour market conditions also improved, although they have yet to recover fully to levels seen a year ago. Elsewhere, industrial production maintained a robust performance in March, increasing by 8.5% on-year, while retail sales growth accelerated by 9.4% from last year, one of the strongest performances over the past two years thanks to strengthening sales of goods.
Moreover, high energy prices coupled with recovering domestic demand caused annual CPI inflation to jump to 2.4% in March from 1.4% in February.
Rising fuel and commodity prices have led to a higher manufacturing producer price index, while the terms of trade continued to deteriorate in Q1. The credit to deposit ratio also increased, implying the tightening of domestic financial conditions. Overnight interbank interest rates therefore ended at 2.08% at the end of March, a figure 1.8% higher than that recorded a year ago.
The budget remained in surplus given a robust revenue collection along with the slow execution of public investment projects. Rising consumer and producer prices also warrant close monitoring of domestic price developments amid rising inflation impacting the recovery of domestic consumption and economic growth.
Most notably, higher import prices and accumulated increases in terms of intermediate and producer price index over the last three quarters could translate into higher consumer prices, especially food prices. In the short run, targeted policy intervention can alleviate the impact of price hikes on the general population, especially for the most vulnerable, a policy which is widely recommended.
The petroleum tax reduction recently introduced by authorities is one such short term measure. Over the medium-term, building a more targeted, effective, and responsive social protection system could contribute to strengthening resilience against external shocks, such as the current commodity price increase. If price increases persist, then the economy will be forced to adjust to the price changes.
Moving forward, WB experts recommend that authorities consider structural reforms to help the economy become increasingly productive and increase aggregate supply. These include tax breaks for productive and innovative investments, serving to reduce barriers in conducting business, reducing logistics cost, and investing in the education and technical training of the local work force.