The world’s economic situation

The crisis is spreading rapidly from the financial area to the real economic area and making vigorous impact on the global economy. The US is the focal point of the crisis and its economy has been hit with the heaviest recession. The latest report by the US National Board of Economic Research (NBER) has officially confirmed that the US economy began its recession in the end of 2007 with the obvious signs being the increasing unemployment, the decreasing retail turnover, the decreasing actual revenue and the gradually weakening industrial growth index.

The US GDP has seen continual reduction in the last three quarters. The stock market is going downhill with Dow Jones Averages being reduced by 33%. The real estate market continues to be sluggish and see no sign of recovery. The US car making industry, a key economic sector relating to over 40 million jobs, is now in danger of being collapsed. If there is no bailout from the US government for this industry, then it can possibly be considered the new disaster hitting the US economy and the world’s economy. About 22 US banks have gone bankrupt or been merged; the financial system is struggling with its heavy losses. The liquidity crisis could be gone, but the bad debt crisis is rushing in, threatening the existence of many US commercial banks.

The crisis is also spreading and plunging many European countries, first of all, Iceland, Ukraine, Turkey, Romania, Hungary. The big economies like Germany, Britain, France and Italy have also officially entered recession.

In Asia, the economies of Pakistan and the Philippines are getting worse very quickly. The Japanese economy has declined in two consecutive quarters. The export work has been incurred with big losses due to the appreciating yen over the US$. The Nikkei index has reduced markedly to 42% while retail turnover has vigorously reduced from the second quarter of 2008. The economy of China has also vigorously declined from September 2008. The CSI index has reduced four times as against the peak time in late 2007. Unemployment has increased, export reduced continually and a large quantity of goods has been stagnantly stocked.

The oil producing countries of the Middle East, South America and Russia have been confronting with their ailing financial systems and their currencies are also depreciating against the US$.

The economic recession has brought along the serious decline of crude oil prices. The material and mineral prices have also reduced sharply while agricultural products prices have gone down vertically. The deflation state has returned in the US, Western Europe and Japan in spite of the fact that the guiding interest rate has reduced to the very low and a large amount of money has been pumped into the financial area. A series of countries has declared their economic bailout and stimulus packages with an estimation of over US$ 3,000 billion, occupying from 5% to 30% of GDP of these countries. The bailout packages of the EU, Japan and the US have been concentrated first of all on the financial area, whereas these packages from other countries have been focussed on stimulating the domestic consumption, mainly on increasing public investment in infrastructure, houses and environment. But in general, these bailout packages have been implemented in a slow manner because of the fact that the demand is so big and the problem is so new. Until now, only onefourth is estimated to have been disbursed. However, the first encouraging light has appeared: the credit market has seen signs of increasing again after more than two months of freezing in the US, Europe and some other countries.

The latest forecast show that the world’s economy in 2009 can increase only by 2.2%, the US economy declines in depth with minus 7%; Japan and the EU: about minus 0.5%. The Asian economy’s growth rate is estimated at about 5%. The Chinese economy’s growth rate is at about 7.5%. It is predicted that the world’s economy in 2010 will recover slowly and the global growth rate can be obtained from 2.5% to 3%. The economies of the US, the EU and Japan will emerge from the recession rock bottom. The Asian economy will reach a growth rate of 6.5% and China’s economy will recover its growth rate from 9% to 10%.

Vietnam’s economy and the forecast

In the present economic background, Vietnam is considered a success country. The economic growth rate is put at 6.5%; inflation has reduced sharply in the year-end months; the budget deficit and trade deficit have decreased against the estimation and social welfare has been improved. The political and social situation continues to be stable. The Government’s solution to stabilise the macroeconomy has obtained important results, particularly the monetary policy has made a positive contribution to reducing inflation and trade deficit. However, the economic situation started to have more difficulties from the fourth quarter of 2008. A strong decrease of export and in November down to below US$ 5 billion level a month. So trade deficit increased again from US$ 260 million level in September to US$ 700 million level in October and US$ 500 million level in November and in December it was estimated to have increased to about US$ 600 million level. It is forecast that there is deficit in the overall balance of payment and this is the first time since 2000, Vietnam’s economy has met with this situation.

The strongest impact due to the financial crisis is on Vietnam’s export which has occupied 65% of its GDP. Foreign Direct Investment (FDI) has made not so strong impact because of the country’s large domestic saving of GDP’s 30%. In other words, FDI has contributed only onefourth of the economic growth. It is forecast by World Bank that Vietnam’s growth rate is put at 6.5% in 2009. However, if the Government can quickly deploy its domestic stimulus package, its economic growth rate could be able to reach 6% and higher in 2010. Inflation in 2009 will be about 10% and increase a little bit in 2010. Trade deficit is estimated at GDP’s 17%; the overall balance of payment deficit could be higher than 2008. So the actual pressure on increasing the foreign exchange rate is stronger. Bad debt rate is estimated not over 5%. The stock market could continue to be sluggish in early months of 2009 and recover slowly in the remaining months of the year. The real estate market could emerge from its rock bottom in the last months of 2009.

On the Government’s economic stimulus package

The total estimation of the stimulus package accounts for 6% of GDP and it is not small at all if we concentrate on the job intensive creating area such as investment in infrastructure and labour intensive businesses. This work should also be implemented in a synchronous manner with both the financial and fiscal policies in order to have mutual help and create spreading effect. This stimulus effect should also be protected from incursion of imported goods. So doing, the foreign exchange rate should be adjusted flexibly. This stimulus policy should be carried out urgently. On the other hand, human resource reserved for the stimulus work should strong enough and be concentrated on the main direction so as to be able to create the spreading effect and on that basis, trust of businesses, investors and public can be restored to boost production and business in a bid to avail ourselves of the advantages of the post-crisis opportunities.

                                                                          Dr.Ecs. Le Xuan Nghia