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2023 is forecasted to be a difficult year for the global economy and Vietnam's economy |
The tightening monetary policy of central banks around the world certainly caused the global economy to slow down, and may even fall into a recession in 2023. With a high openness of GDP, Vietnam's economy will certainly be strongly affected by the global economy.
Historical data shows that every time the world or regional economy has problems, such as the Asian currency crisis in 1998, the US financial crisis in 2008, or the Covid-19 epidemic recently, Vietnam's economic growth slowed down significantly, at less than 6 percent.
In addition to the risk of slowing growth, increasing inflationary pressure is also a big challenge for Vietnam next year. Although on average CPI only increased by about 3 percent in 2022, inflation over the same period was at more than 4 percent. Average inflation is also at a high level, averaging 0.4 percent per month, equivalent to 4.8 percent a year, due to the impact of rising world raw material prices, consumption demand and investment boom after the pandemic also does not exclude the impact from monetary easing in previous years. In 2023, inflation pressure will be greater than in 2022, due to the additional impact of the VND depreciation of about 8-9 percent against the US dollar.
Another challenge is related to the debt crisis in the corporate bond market in 2022, it is hoped that real estate businesses can raise little capital on the stock market despite the issuance of stocks or bonds. Meanwhile, the bank credit channel has also reached its limit, when the real estate debt ratio is up to 20% percent of total credit. Therefore, in 2023, the real estate market is likely to fall into a quiet state due to a lack of resources; thereby, affecting other sectors of the economy such as construction, iron and steel production, and decoration.
While the economy is forecast to face many difficulties in 2023, policy space is limited. This is also a big challenge. In general, when the GDP growth rate shows rising economic productivity, the value of money in circulation increases. The scale of money supply and credit compared to GDP is now at a high level, even a limit, so if it is loosened further, inflation and bad debt will be unlikely to be under control at a reasonable level. Meanwhile, fiscal policy is bumping into difficulties in disbursing although there is still a little room.
Although the above forecasts and comments are somewhat pessimistic, there is still hope that things will not be too bad in 2023. Currently, inflation in developed countries, typically the US, is likely to have reached the top. Meanwhile, although interest rates have increased rapidly in recent years, they are not too high. The risk of a global recession can therefore be avoided provided that central banks stop tightening monetary policy at the right time.
The other hope for global economic growth is that China - the second largest economy in the world - can continue to ease the zero Covid policy and increase economic stimulus, including the rescue of the domestic real estate market. If China's economy recovers, not only will global aggregate demand be improved, but the disruption of supply chains will also be overcome. The current Indian economy is also considered the fulcrum of the global economy in the coming year. If the world economy does not fall into recession, the target of 6.5 percent growth in 2023 will hopefully achieve.
Although inflation is accelerating, the pressure from the world's basic commodity prices in 2023 is probably not great, when global economic growth slows down. The pressure from the exchange rate in the coming year is expected to decrease when the USD index is likely to have peaked.
If the downtrend of the US dollar against the Vietnamese dong takes place, the pressure of the exchange rate on import inflation will decrease accordingly. In other words, prices are likely to slow down, and the inflation target of around 4.5 percent in 2023 could still be achieved.
The downtrend of the USD in international and domestic markets will also help reduce the incentive to hold foreign currencies in the foreign exchange market. If this happens, the State Bank can completely return to net buying the US dollar in 2023 to increase foreign exchange reserves, and inject more liquidity into the commercial banking system; thereby, reducing pressure on interest rates to support growth.
Developments in the real estate market have shown that market-based solutions are playing their role. If economic relations are not criminalized, bondholders and issuers can fully reach an agreement on debt restructuring, including debt rescheduling, partial repayment or exchange of debt for shares. Besides, in order to support real estate businesses, the Government also needs to remove cumbersome and unnecessary procedures so that businesses can quickly complete projects, put them into business, generate revenue, and have a profitable business for debt repayment.
In addition, the real estate market will also attract more resources for development next year, if housing prices and real estate investment trusts' stocks have declined to attractive levels. Of course, when market-based solutions are applied, some businesses will have no choice but to accept reduced profits, losses, or even bankruptcy. In other words, real estate businesses ought to share benefits with other actors in the market if they want to get out of the current predicament.
Generally, 2023 is not the year to be optimistic about the Vietnamese economy in general and real estate businesses in particular. However, there is still hope that the country will gradually overcome difficulties to finally achieve the set goals.
