Vietnam Macro Monitoring
This brief focuses on the economic development in Vietnam as of November 2022. Industrial production and retail sales moderated in October as both domestic and external demand slowed. Exports growth slowed to a 12-month low of 4.8 percent (y/y) as external demand weakened amid high inflation, tightening global financial conditions, and heightened global uncertainties. FDI commitment bounced back strongly thanks to a jump in greenfield investment in electricity, gas, and water supply while FDI disbursement maintained a robust growth. Despite falling fuel prices, CPI inflation increased from 3.9 percent (y/y) in September to 4.3 percent (y/y) in October, driven by faster rise in food prices, which account for 21.3 percent of the CPI basket. The economy faces strong headwinds. Slowing external demand and tightening global financial conditions are affecting the exchange rate. Rising inflation and tightening domestic financial conditions could affect domestic demand in the coming months. As US Fed is expected to continue raising interest rates, Vietnamese monetary authorities could consider allowing further flexibility in the exchange rate, including through a quicker pace of depreciation of the reference rate. This could be complemented with continued use of reference interest rates, especially if faster depreciation leads to higher inflation and inflation expectations rise. Given the persistence of exchange rate pressures, direct FX sales should be used judiciously to preserve the FX reserves. Fiscal and monetary policy coordination will be critical to ensure price stability in light of accelerating domestic core inflation. Moreover, recent banking sector volatility calls for increased vigilance and intensified supervision efforts.
| Main Author: | |
|---|---|
| Format: | Brief biblioteca |
| Language: | English English |
| Published: |
Washington, DC
2022-11
|
| Subjects: | EXCHANGE RATE FLEXIBILITY, SLOW GROWTH, FISCAL AND MONETARY POLICY COORDINATION, ECONOMIC DEVELOPMENT, MACROECONOMIC DATA, |
| Online Access: | http://documents.worldbank.org/curated/en/099113211152265313/IDU0b58597e101b1c04c320b1e00c66c37e755a3 https://hdl.handle.net/10986/38322 |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
| Summary: | This brief focuses on the economic
development in Vietnam as of November 2022. Industrial
production and retail sales moderated in October as both
domestic and external demand slowed. Exports growth slowed
to a 12-month low of 4.8 percent (y/y) as external demand
weakened amid high inflation, tightening global financial
conditions, and heightened global uncertainties. FDI
commitment bounced back strongly thanks to a jump in
greenfield investment in electricity, gas, and water supply
while FDI disbursement maintained a robust growth. Despite
falling fuel prices, CPI inflation increased from 3.9
percent (y/y) in September to 4.3 percent (y/y) in October,
driven by faster rise in food prices, which account for 21.3
percent of the CPI basket. The economy faces strong
headwinds. Slowing external demand and tightening global
financial conditions are affecting the exchange rate. Rising
inflation and tightening domestic financial conditions could
affect domestic demand in the coming months. As US Fed is
expected to continue raising interest rates, Vietnamese
monetary authorities could consider allowing further
flexibility in the exchange rate, including through a
quicker pace of depreciation of the reference rate. This
could be complemented with continued use of reference
interest rates, especially if faster depreciation leads to
higher inflation and inflation expectations rise. Given the
persistence of exchange rate pressures, direct FX sales
should be used judiciously to preserve the FX reserves.
Fiscal and monetary policy coordination will be critical to
ensure price stability in light of accelerating domestic
core inflation. Moreover, recent banking sector volatility
calls for increased vigilance and intensified supervision efforts. |
|---|