The strong economic performance was thanks to the reopening of the economy since late 2021, which resulted in a sharp rise in all major mobility indicators as vaccination coverage surpassed 73% of the population, stated the World Bank in its latest report.

In January, industrial production index growth moderated to 2.4% year-on-year from 8.7% in December 2021, while the manufacturing PMI jumped from 52.5 in December 2021 to 53.7, the highest reading since May 2021, indicating significantly improved business conditions.

On the other hand, retail sales registered the first positive year-over-year growth rate since May 2021 by 1.3% year-on-year.

“This recovery was fueled by strengthening consumer demand, particularly for goods as households prepared for TET celebration,” noted the World Bank.

Indeed, sales of goods, which accounted for over 80% of retail sales grew by 4.3% year-on-year.

In the first month of the year, Vietnam attracted $2.1 billion of FDI commitment in January, up 4.2% year-on-year.

Growth was driven by large investment in expansion of existing businesses, particularly in electronics and by active M&A activities. The latter doubled in value in January 2022 compared to a year ago, reaching over $400 million, or 20% of total FDI commitment).

Manufacturing continued to make up nearly 60% of total commitment, followed by real estates (22.5%).

The disbursement of approved FDI projects continued to recover from their slump in the third quarter of 2021, increasing by 6.8% in January 2022.

Another positive news came from the inflation that remained under control. The consumer price index (CPI) rose by 1.9% year-on-year, comparable to the rates recorded at the end of 2021.

Much of this increase is attributed to rising energy prices, which pushed up costs of housing and transports. Food prices remained relatively stable while core CPI, which excludes food, energy, and items whose prices are administered by the government increased by 0.7%.

Garment production at a facility in Hanoi. Photo: The Hanoi Times

Vigilance on financial sector required

The World Bank also mentioned the upcoming economic recovery support program for 2022-2023 that was launched in January as a positive factor for growth.

Under this program, overall planned on-budget fiscal measures are an estimated 4.5% of revised GDP. On the revenue side, the inclusion of tax and land rental deferrals reflects the relative success of these fiscal tools since the beginning of the crisis.

Additionally, the VAT rate has been cut from 10%to 8% for most sub-sectors, amounting to an expected 0.6% (of revised GDP) reduction in VAT receipts. All revenue measures are to be implemented in 2022.

The expenditure component (2.2% of revised GDP) is mostly composed of public investments and interest rate subsidies. Public investments (1.6% of revised GDP) include accelerating the projects in transport already listed in the Medium-term Public Investment Plan 2021-2025 and new projects in health, education, social protection, employment, digital transformation, tourism, and climate change adaption.

However, as the bulk of these new investments will be implemented in 2023, and thus may not impact growth substantively in 2022, noted the World Bank.

In the coming time, the World Bank noted health measures, such as the vaccination program and “5K message” should continue as the risk of another Covid-19 variant outbreak affecting the economy exists, and the country is opening schools and plans to lift border restrictions on international visitors to revive the tourism sector.

According to the World Bank, the new economic recovery support program could be enhanced through adding further social protection measures to support workers and households affected by the pandemic. Additionally, close monitoring of the Program implementation would help ensure its intended impact is achieved.

Vigilance on the financial sector is also warranted, given the potential impact of the crisis on the quality of bank portfolio and the spillover effects of the expected increases in interest rates by the US Federal Reserve.