Insights
Nghi a Le
Challenging economic recovery Despite the complicated pandemic in many countries, especially in Asia and Southeast Asia, most countries have chosen a flexible easing strategy to support economic development. However, the world economic recovery remains challenging due to global supply chain disruption and international trade stagnation. Global economic growth forecast low China’s economy - one of the two sources for recovery - slowed down in the third quarter and that momentum will be maintained in the fourth quarter. Industrial production index and consumer spending have seen a continuous decrease in recent months. Major risks in financial, real estate and energy sectors exert more pressure on its robust economic recovery observed in the first half of 2021.
that U.S., Europe and Japan have recently injected through economic stimulus and social relief programs (U.S.: 27 percent GDP, Japan: 61 percent of GDP, Europe: 18 percent of GDP) will inevitably exert long-term growing inflationary pressures. In addition, the supply disruption due to shortages of raw materials, means of transport and the recent fuel crisis will also put pressure on cost inflation, which in turn will worsen global cost-push inflation.
The U.S., Germany, Japan and some European countries also revised down their growth forecasts for this year, in particular: U.S. from 7 percent down to 5.9 percent and maybe even lower, Germany from 3.8 percent to 2.5 percent. For Japan, the recovery sees no progress at all.
Global trade still observes a weak recovery, which is attributed to disrupted supply chains, high transport costs, prolonged transport durations, leading to a shortage of semiconductor chips and sharp increase in raw materials and fuel prices. Global trade growth is expected to hit just 0 percent this year, with modest growth the following year.
Global inflation has shown signs of increasing and is likely to persist, threatening economic recovery and GPD growth in the medium term (except for Japan, which is still in deflation). Inflation in the U.S. is expected to reach 4.2 percent this year, while that of UK, Europe and China is approximately 3 percent, 2.5 percent and 4.5 percent, respectively. Although Fed and the central banks in some countries have set long-term inflation targets at 2.2 percent - 2.5 percent, the huge amount
In terms of currency and investment, despite the ongoing challenge in economic recovery, many central banks (except Japan) are planning to narrow down their economic stimulus, sharply reducing asset purchases and raising interest rates. Fed is expected to gradually raise the overnight rate from current 0.25 percent to 2.1 percent in 2022. South Korea is the first country to gradually shift to a tight monetary policy and increase interest rates from August 2021. China and many other
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countries are also expected to raise interest rates from 2022. Therefore, the USD tends to appreciate significantly while currencies of many developing economies become weaken. This trend could last until 2021-end and begin to change significantly in the second half of 2022. Foreign investment flow into developing countries could be significantly reduced, although a massive capital outflow is unlikely. In China, the collapse of Evergrande group is also posing significant concerns over its financial market. Despite its insignificant impact on international financial market (foreign investment in Evergrande is less than USD100 million), the Chinese government has to inject CNY100 billion into the banking system to maintain liquidity. In addition, the government’s policy adjustments towards domestic tech giants may also adversely affect foreign investments.
Vietnam’s GDP projected at 2.02.5 percent in 2021 Vietnam’s economy in 2021 severely suffers during the pandemic, worsened by the disruption of global supply chain. Economic growth saw a
