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Sunday, July 21, 2024

Economic outlook – gloomy or not?

By Vo Dinh Tri, Ph.D.

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While many enterprises have in a recent survey held a negative viewpoint on the economy in the rest of 2023, official data paint another picture.

The Board for Private Economic Development Research in a recent report stated that around 82% of nearly 10,000 enterprises being surveyed are downbeat about the economy in the rest of 2023. Meanwhile, data showed industrial production, export and consumption have fared better in the past few months. In addition, the global economy is forecasted to grow faster in the second half of the year. The question is how to determine the economic outlook – is it data-driven or sentiment-based?

Domestic background

A survey conducted by the Board for Private Economic Development Research shows that 81.4% of enterprises say it is “negative” or “very negative” when assessing Vietnam’s economic outlook in the rest of 2023. Key factors behind such assessments in the descending order of intensity are the lack of goods orders, access to credit, administrative procedures, and legal compliance.

However, the index of industrial production (IIP) shows the situation has gradually improved since early this year till now. Data from the General Statistics Office showed the IIP in May 2023 rose 2.2% against the previous month and 0.1% over the same period last year. In the first five months of the year, 49 localities reported an IIP growth rate of over 10% while 14 others saw a contraction.

In foreign trade, May saw a trade surplus of US$2.24 billion, while that for the first five months amounted to US$9.8 billion. However, the export value fell by 11.6% year-on-year due to the global economic slowdown in the year’s first half. Vietnam’s major export markets were still the U.S., the EU, China, and ASEAN.

The total retail of commodities and services as another key indicator has also shown the steady improvement in recent months. While certain commodities and services have seen weaker consumption, such a downturn has been offset by an increase in the consumption of other goods and services, and the overall picture is not downbeat as perceived.

International background

With the high probability that the U.S. Federal Reserve would not further raise its federal funds rate after the recent hike, stock markets and enterprises can have a huge sigh of relief. Many major tech firms in the U.S. have also announced their recent layoffs as the final ones. Refinitiv estimated that the year-on-year profit growth of S&P500 in Quarter 3 would be 1.7% after negative rates in previous quarters, and would hit 9.8% in Quarter 4. The following quarters in 2024 are expected to see the profit growth hovering around 10-12%.

Concerns about debt defaults stateside have also been doused following the signing of a bill to suspend the U.S. Government’s debt ceiling, and expenditures by the U.S. Government would help boost the economic growth this year.

The Chinese economy also has strong impacts on Vietnam due to the high bilateral trade. Though the neighboring economy has slowed somewhat this year, China still has much room for its fiscal and monetary manoeuvre to attain an economic growth rate of around 5% this year. The second half will likely see acceleration in the Chinese economy following slowdown in the first half.

In other major economies that have considerable impacts on Vietnam like the EU and Japan, hardships are not so much concerning. The eurozone inflation has eased, and the European Central Bank will soon follow the Fed move to refrain from hiking interest rates. The German economy falling into technical recession has also raised concerns, though Germany is not a big trade partner of Vietnam. However, investment in Germany has seen a turnaround and is expected to return to the growth track in the coming quarter.

Japan, meanwhile, has continued its monetary loosening policy to support the economy, which has prompted the stock market there to bounce back, with the Nikkei Index skirting the high seen in the 1990s. Japanese corporations thus have been able to mobilize capital for investment. A weaker yen has also helped bolster Japan’s exports and thus its economic growth.

Sentiment versus data

Making data-driven decisions is becoming more widespread, since sentiment can be biased due to the influence from others or insufficient information. While quite many enterprises are pessimistic about the economy in the year’s second half in a recent survey, data point to another tendency.

Supposed opinions by enterprises are based on facts and figures, there is a big question over the quality of such figures, or the capacity by enterprises to comprehend those figures.

However, any sentiment on the market or the economy reflects the feeling about the situation at the time of answering the survey, which is subject to change once data are updated. It is concerning, still, is the spread of the mob mentality. An enterprise may take for granted the economic hardship upon reading a news story on the gloomy outlook, and if that sentiment spreads, that mob mentality may have adverse impacts on the economy.

Therefore, the sufficient and timely supply of transparent statistical data on the economy is of paramount importance. Enterprises can give their data-based opinions and make decisions accordingly, provided that the quality of such data is assured.

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