Controlling inflation key to economic recovery
Controlling inflation key to economic recovery
During the first quarter of 2021, the economy made a clear recovery, though not as expected. This calls for a need to speed up in coming time and keep inflation below 4% as per the target set by the National Assembly. Saigon Investment had a talk with Dr. TRAN DU LICH, an economist, and learnt insights from many of his views.
Export is currently the bright point of the economy. Photo: VIET CHUNG
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JOURNALIST: - Sir, the GDP in the first quarter is estimated to increase by 4.48%, higher than growth rate of 3.68% in the first quarter of 2020. What do you think about this growth compared to expectations?
Dr. TRAN DU LICH: - First of all, it must be said that GDP growth in the first quarter has not met expectations as a result of the negative influence of the third wave of the Covid-19 pandemic, which effect was felt the most by the service sector. However, if compared with the increase of 3.68% in the first quarter of 2020, the increase in the first quarter of this year is better. In the growth rate of the first quarter, there are also some highlights that need to be looked into. The first is the manufacturing and processing industry which showed an increase of 9.45%, and the mining industry was negative at 8.24%. Thus, it can be said that the driving force behind the first quarter economic growth was mainly the manufacturing and processing industry.
In addition, the Government had a dual mission to fight the pandemic and also promote growth based on the three main pillars of public investment, increasing exports and exploiting the domestic market. In particular, exports saw a bright spot, when the export of goods increased by 22%, although in general, exports only increased by 17.01% due to the decrease in service exports; at the same time, we still had a trade surplus of USD 2.03 bn. In terms of purchasing power, total retail sales of consumer goods and services increased by 5.1% over the same period last year, and social investment capital increased by 6.3%. These figures show that although there were many difficulties in the first quarter due to the third wave of Covid-19, we still achieved the double target.
However, there are also many new difficulties, such as affected exports due to lack of containers, rising transport prices, and not being able to exploit the domestic tourism market as planned. Notably, according to the survey, the operating situation of the business is generally good, but in the first three months of the year, the number of newly established businesses were less than 30,000, and the number of temporarily suspended operations were more than 40,000 enterprises. Therefore, the problem is to calculate how to continue supporting businesses.
- Sir, the average CPI in the first quarter increased by 0.29%, and the average basic inflation increased by 0.67% over the same period last year, but many people worry that the target of keeping inflation at below 4% this year will not be easy. What is your view on this?
- The greatest concern now is that the world raw material prices in many areas have increased sharply, some up to 30% to 40%. However, our economy is one that imports raw materials, which will certainly affect production costs and export costs. Thus, the risk of import impact on inflation is actual, but in the first quarter, this problem is still not clear. Therefore, the most worrisome is how to prevent cost-push inflation.
In the first quarter, the average CPI increased only 0.29% over the same period, and basic inflation increased only 0.67%. Basic inflation is the point related to the monetary factor. I think the basic inflation rate at 0.67% is a good reassuring point, because basic inflation at 2% to 2.5% is acceptable under current conditions.
So what problems needs to be calculated in the near future? In my opinion, the target of controlling the CPI below 4% in 2021 can be achieved if we maintain the monetary and fiscal policies and take precautions to import inflation from external factors. We must look out for the risk of inflation, but we cannot withdraw policies related to stimulating the economy because we are afraid of it. These policies must be consistently implemented in accordance with Resolution 01 of the Government.
We should not change any issues and should have a new support package related to credit and fiscal. For example, the support policies under Decree 41 of the Government, which will be applied from April 2020, need to be continued to implement tax extension and reduction.
- Sir, according to the Ministry of Planning and Investment, to reach the GDP growth target of 6.5%, the economy must increase at 7.19% in the second quarter, 6.78% in the third quarter and 7.16% in the fourth quarter. What management solutions can you propose so that we can achieve both target of growth and keep inflation below 4% this year?
- In my opinion, if we are persistent, some problems can still achieve their goal. First, we should not be subjective, but must continue the second enterprise support package, especially in helping businesses in difficulty. Second, we should continue to deal with problems in public investment. Third, we have to promote solutions to stimulate the domestic market. Especially, if the pandemic can be controlled, the solution we can focus on is to stimulate domestic tourism demand in the summer, and also increase domestic purchasing power.
The important thing for 2021 is not only the growth target of 6.5%, but also to lay the foundation for more sustainable and stable growth from 2022 in the context of exploiting the new generation bilateral and multilateral free trade agreements. In addition, we should take advantage of the country's good pandemic control methods to make Vietnam a destination for investment, especially investment in the new generation. These plans must be prepared from this year on. We also need to build institutions and policies to have a more stable development growth from next year and in the following years.
- Sir, what is the room to expand fiscal and monetary policies this year to stimulate economic growth?
- Regarding fiscal policy, the National Assembly has approved the budget deficit, but the problem is how to implement planned projects, especially disbursement for the North-South Expressway and some key projects to stimulate growth. In terms of credit, with the increase in the first quarter, if this year the goal of increasing credit is by two times the rate of GDP increase, there will be huge room left. As I said, there is no risk of monetary inflation, but if the economy warms again, we also cannot expect much further lowering of interest rates, or keeping the current interest rate level as well.
- Thank you very much.
