*Võ Trí Thành
In 2019, the global economy witnessed a steady deceleration. According to estimates made by the International Monetary Organization (IMF) in October 2019, growth reached only 3.0 per cent compared to 3.6 per cent in 2018, lower than forecasts made in July and April respectively by 0.2 and 0.1 percentage points. Trade flow and foreign direct investment also decreased.
Uncertainty and high risks impeded growth momentum as a consequence of geo-political confrontations and a conflict between investment liberalisation and protectionism, not to mention climate change.
According to a survey conducted by the Pacific Economic Cooperation Council (PECC), the top five risks to the growth of Asia-Pacific economies included:
- Rising protectionism and trade wars
- Global trade growth decelerating
- A slowing Chinese economy
- A slowing US economy
- Lack of political leadership
The survey notes that the risks remained similar to 2018, with the only difference being the US economy.
Many researchers also made predictions that the global economy would probably fall into recession, even crisis in the near future. The reason behind this was the risk of stock "bubbles", bulging underground banks and high debt ratios in some areas while many countries did not have enough time to roll back their loosened monetary policies to a "normal state".
However, even in the cloudy situation, the global economy also witnessed a strategic transformation in many countries to adapt to irresistible trends such as increasing urbanisation, the rise of the middle class, the consumer revolution, the Fourth Industrial Revolution (Industry 4.0) and digital transformation.
Clearly, in addition to ensuring stability, increasing resilience and focusing on risk management, each economy needs to bolster structural reforms, creating a premise to adapt to new trends to create development breakthroughs.
Joy and torment
Việt Nam's economy shone in 2019, and that joy was doubled in the context of the global economic crisis that made it difficult for an open and deeply integrated economy like Việt Nam avoid many adverse impacts. It was the second consecutive year the country achieved and exceeded all the major targets set by the National Assembly.
GDP in 2019 increased by more than 7.0 per cent. Exports of goods reached more than US$263 billion, up 8.1 per cent compared to the previous year, and the domestic sector’s exports recorded an increase of 17.7 per cent, much higher than the growth rate of the FDI sector (4.2 per cent). The trade surplus reached $9.9 billion, the highest in four years.
High GDP growth was accompanied by macro-economic stability. Inflation only increased by 2.79 per cent, foreign exchange reserves continued to rise to nearly $80 billion, and the public debt ratio fell sharply to 55 per cent of GDP.
The most important result was that people's incomes continue to rise, reaching nearly $2,800 per capita per year, and the percentage of poor households fell to 1.45 per cent, which was recognised by UNDP as a significant achievement in poverty reduction. Also according to the organisation, Việt Nam's Human Development Index (HDI) posted one of the highest growth rates in the world. With an HDI of 0.63 in 2019, Việt Nam ranked 118 out of 189 countries, nearing the average HDI level and just 0.007 points behind the group of countries recognised as having high HDI.
Behind these impressive figures and achievements, there were still concerns regarding sustainable development, innovation promotion and market sentiment.
Under the impact of economic activities and urbanisation, awareness and lifestyles did not keep up with new requirements for sustainable development and environmental protection, especially in big cities like Hà Nội and HCM City. Serious environmental incidents occurred, showing many shortcomings in dealing with such problems, both in terms of strategy and policies and actions.
The quality of growth was also slow to improve, although labour productivity in 2019 increased by 6.2 per cent. The overall investment efficiency remained low and did not change much . On average, from 2016-19, the Incremental Capital-Output Ratio (ICOR) reached 6.14, only slightly lower than the level of 6.25 recorded from 2011-15. The ICOR is the ratio of investment to growth which is equal to the reciprocal of the marginal product of capital. The higher the ICOR, the lower the productivity of capital or the marginal efficiency of capital.
Clearly, Việt Nam needs to make a breakthrough in innovation and creativity – something that has tormented the Government for a long time.
Việt Nam is assessed at the lowest level - "nascent " - in readiness for Industry 4.0. According to the World Economic Forum, there are four levels to assess readiness: leading, high potential, legacy and nascent. Indeed, Việt Nam still has a long way to go to reach satisfactory results in promoting and improving its creative capacity. The reason is that for a long time, Việt Nam has not considered businesses attached to R&D as the core of the National Innovation System (NIS).
Statistics show that currently 76 per cent of Vietnamese enterprises have not started to digitalise, which is 1.5 times larger than the global average. According to experts, the biggest problem for digital transformation among Vietnamese businesses is awareness and resources.
Market sentiment, especially in the stock and real estate markets, is also a very interesting indicator.
Stock market sentiment changed from "excitement" in 2017 to "cautious" from the end of 2018 to the end of 2019. Not only did liquidity drop significantly, but forecasts were also more reserved.
Few doubt the great potential of Việt Nam's real estate market. But in 2019, the market was generally quiet, and the supply and number of successful transactions decreased. This was also a challenging year for market confidence due to increased disputes between project owners and customers, as well as land fever in some localities accompanied by "ghost" projects and lack of solutions from the Government.
2020: Confidence and action
The National Assembly has set a GDP growth target of 6.8 per cent and inflation of no more than 4 per cent. Looking back at 2019, this is a fairly cautious but reasonable choice as the global economy is still assessed to be in a period of deceleration with high uncertainty and many risks ahead. International organisations continue to believe that the basic factors of the Vietnamese economy are quite stable, and Việt Nam can achieve growth of about 6.5-6.8 per cent.
Domestically, the National Socio-Economic Forecasting Centre has built two scenarios for economic growth for 2021-25. Firstly, Việt Nam's GDP growth rate will average 7 per cent per year; inflation at 3.5-4.5 per cent per year; and labour productivity will increase by about 6.3 per cent per year. Second, if Việt Nam can take advantage of Industry 4.0, GDP can grow on average 7.5 per cent per year. This would also be the foundation for Việt Nam to become a high-middle-income country by 2030 and overcome the "middle-income trap”.
It is necessary to look at the economy in 2020 in a broader context. 2020 is not only a year to summarise the past but also to prepare for the future with a new 5-year plan, a 10-year strategy and a vision to 2045, while celebrating the 100th anniversary of the Democratic Republic of Việt Nam. Reform, innovation and targets must be linked to the new momentum and requirements of development: quality - efficiency - sustainability - inclusiveness.
In that spirit, the Government's motto in 2020 must be: "Action, Responsibility and Innovation."
* Võ Trí Thành is a senior economist at the Central Institute for Economic Management (CIEM) and a member of the National Financial and Monetary Policy Advisory Council. The holder of a doctorate in economics from the Australian National University, Thành mainly undertakes research and provides consultation on issues related to macroeconomic policies, trade liberalisation and international economic integration. Other areas of interest include institutional reforms and financial systems.