WB: Consider supporting aggregate demand through accelerating disbursement of public investment

Accordingly, commenting on recent economic developments, the WB said that Vietnam’s GDP in the first quarter of 2023 grew by 3.3%, slowing down compared to the fourth quarter of 2022, largely due to the contraction of the industry, reflecting a sharp drop in exports amid weak global demand.

Meanwhile, the outlook for the manufacturing sector’s recovery remains uncertain as the Purchasing Managers’ Index (PMI) returned to a contraction zone (47.7 points) in March after a brief rally in February out of 50 points.

Furthermore, the decline in export and import turnover reflected a decrease in exports in several key sub-sectors: electronics, machinery, textiles, footwear and related imported input products. This is the second consecutive quarter that Vietnam’s international merchandise trade has shrunk.

However, the WB assessed that there were still some signs of improvement that were recorded in March 2023 when exports and imports both increased again compared to the previous month, the trade balance continued to be in surplus. The good news is that the service sector continues to be the main contributor to growth in the first 3 months of 2023 thanks to strong domestic demand and a large number of returning international visitors.

The decline in registered foreign investment capital (FDI) in 2022 continued in the first quarter of 2023 amid high global uncertainty, reflecting the impact of uncertainties on the global economic outlook. demand and tightening financial conditions in advanced economies.

In terms of financial sectors, according to the World Bank, credit deceleration reflects a slowdown in economic activity, especially in the industrial and real estate sectors, as well as the high interest rate environment. To support the economy, the State Bank of Vietnam (SBV) has twice decided to cut regulatory interest rates, thereby helping to ease domestic financial conditions.

The WB also said that there was a budget surplus in the first quarter of 2023, but development investment spending only accounted for 10.3% of the planned budget in the same period, which partly reflected the slow disbursement of public spending. According to the World Bank, the slow disbursement of public investment capital in the first quarter is not unusual, as some public investments are still waiting for budget allocation.

From the above issues, WB experts recommend to closely monitor economic growth and export of manufactured products slowing down in the first quarter of the year. According to the World Bank, in case domestic and external demand continues to be weak, the Government should consider supporting aggregate demand through accelerating disbursement of public investment.

The WB also forecasts that rising electricity prices and public sector wages in the coming months may put pressure on inflation. The possibility that the US will continue to tighten financial to control inflation may affect exchange rate management, especially when the State Bank has just reduced some regulatory interest rates to support the economy.

Therefore, once again, the WB believes that close supervision of the financial sector is very important in the context that the global financial market continues to have many uncertainties and the domestic economy is slowing down, including a stagnation in the real estate sector with about 20% loans of financial sector.


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