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Sunday, October 24, 2021

Public investment the only bright spot

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The return of Covid-19 to Vietnam in late July left a negative impact on the economy in August, a clear sign of which was the falling index of industrial production and retail sales. Amidst the overall bleak picture, the bright spot was public investment further accelerated and inflation remained under control.

The General Statistics Office recently released the macroeconomic indicators for August. Generally speaking, economic recovery seemed to have lost its momentum last month, when Covid-19 came back in some localities, according to Bao Viet Securities Company (BVSC).

Specifically, on the supply side, the index of industrial production continued its recovery in August, picking up 3.5% against July. Overall, the index of industrial production in the first eight months of 2020 grew 2.2% year-on-year, slightly lower than the rate of 2.6% registered in the first seven months, and much lower than the 9.5% increase in the same period last year. Processing and manufacturing (the main driver of industrial production) recorded a rise of only 3.7% (versus 10.6% in the same period last year). Apparently, the fact that Covid-19 remains rampant worldwide and came back to Vietnam in late July adversely affected the recovery of industrial production in August.

In the first eight months of the year, most industries in Vietnam achieved modest or negative growth year-on-year, including textile (+1.3%), electricity production and distribution (+2%), clothing (-4.2%), motor vehicle (-14%) and metals (-1.4%), etc. However, two industries fared well with remarkably higher growth in January-August, namely production of pharmaceutical chemicals (+26.2%) and electronics, computers and optical goods (+7.8%).

One notable point is, according to the General Statistics Office, the number of industrial workers as of August 1, 2020 had fallen 2.9% year-on-year, with a decline of 1.7%, 3.5% and 2.8% at State-run enterprises, non-State enterprises and foreign-invested enterprises, respectively. These statistics indicate the challenging business situation has adversely affected employment in the industrial sector, thereby exerting more pressure on the demand side in the coming time.

Domestic consumption suffered from a hard blow in August when the epidemic returned. Obviously, retail sales of consumer goods and services last month went down 2.6% against July, marking the first month in which retail sales have dropped again after three consecutive months of recovery. As a result, the cumulative retail sales in the first eight months of the year saw a slight decrease of 0.02% year-on-year, or as much as 4.5% if price adjustment were excluded (versus 9.5% in the same period last year). It is clear that there are hardships on the demand side, but this is not difficult to explain when one looks at the decline in both employment and workers’ incomes under the negative impact of the pandemic.

When it comes to structure, retail sales of goods which account for 79% was less affected, with a rise of 4%, since people still had to shop for essential goods. That said, the increase would be less than 1% if the price factor were excluded. Furthermore, compared with the average growth of 11-12% in the same period of recent years, the aforesaid rate is much lower. Meanwhile, accommodation/dining and travel services were hardest-hit by the pandemic, plunging 16.4% and 54.4% respectively in the first eight months.

Public investment further accelerates

In August, State investment was estimated at more than VND47.35 trillion, up 3.4% from July and 51.3% year-on-year. This is the highest disbursement rate in a month since January 2014. Overall, in the first eight months of the year, investment capital from the State budget reached VND250 trillion, meeting 56.7% of the plan for the whole year, a rise of 32.3% over the same period last year—the highest growth in 2016-2020. Some cities and provinces enjoying a remarkable increase in the disbursement of investment capital from the central budget are: HCMC (nearly VND22.28 trillion, up 79.8%), Quang Ninh (some VND9.45 trillion, up 58.3%), Thanh Hoa (around VND6.35 trillion, up 29.8%), Nghe An (over VND4.99 trillion, up 41.7%), etc.

As per the plan, the Ministry of Transport this month will be in charge of carrying out three component projects of the North-South expressway: the three sections Mai Son-National Highway 45, Vinh Hao-Phan Thiet and Phan Thiet-Dau Giay. In the first eight months of the year, the Ministry of Transport posted the highest rate of State capital disbursement among all ministries, spending some VND10.74 trillion, 53.5% of the year’s plan, up 90.8% year-on-year. Given the policy on stepping up public investment, especially in the key infrastructure projects, it is likely that the Ministry of Transport will remain an important factor in the disbursement of investment from the State budget in the months to come.

Inflation becomes flat

The CPI in August remained almost unchanged from July, posting a negligible rise of 0.07%. By the end of August, the CPI had grown 3.18% over the same period last year. This is the third month in a row inflation has slackened its pace. Seven out of the 11 groups of commodities posted a price hike last month. The highest hike was the education group (+0.18%), as some centrally-run cities and provinces impose higher tuition fees for the new school year 2020- 2021 and the price of books and stationery slightly went up because of the heavy demand before the start of a new school year. The group of food and catering services registered the second greatest price hike (+0.11%), with a rise of 0.6% in the price of food (rice price alone went up by 0.79%, probably due to the surge in export prices under the impact of floods in China this July), and 0.08% in the price of foodstuff (1.96% and 0.84% respectively for fresh vegetables and poultry eggs).

A positive thing concerning inflation is pork price has plummeted since the second half of August. This coupled with sluggish demand will help control the growth of the CPI in the final months of the year. Even though inflation is now put in check, that low demand is the key cause is needlessly good news!

By Dang Linh

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