This morning (January 4), the Academy of Finance (Institute of Economics and Finance) organized a Scientific Workshop with the theme: "Market and price developments in Vietnam in 2023 and forecast for 2024". Here, experts presented 3 inflation scenarios with corresponding increases of 2.5%, 3% and 3.5%.
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| Assoc. Prof. Dr. Nguyen Manh Thieu, Deputy Director of the Academy of Finance opened the Workshop. |
Average core inflation in 2023 increased by 4.16%
Opening the workshop, Associate Professor, Dr. Nguyen Manh Thieu, Deputy Director of the Academy of Finance, said that the world economic situation in 2023 continues to face many difficulties and challenges: Although inflation has cooled down, it is still at a high level, many major economies maintain tight monetary policies and high interest rates; global trade, consumption and investment continue to decline; protectionist barriers and trade defenses are on the rise... affecting the export and import activities of the region and the world. Many countries, including Vietnam's major trading partners, have slowed growth, high public debt and many potential risks, declining global aggregate demand... directly affecting countries with large economic openness, including Vietnam.
Global economic growth in 2023 has been adjusted by international organizations compared to previous forecasts, but most forecasts are lower than the growth rate in 2022. The December 2023 Global Trade Update Report of the United Nations Conference on Trade and Development (UNCTAD) forecasts that total global trade in 2023 will decrease by about 5.0% compared to 2022. Prices of raw materials and fuels on the world market tend to decrease quite sharply, especially prices of energy and fertilizers... due to being heavily affected by the conflict in Ukraine, persistent high inflation, tighter monetary policies and the risk of financial instability.
In that context, the Party, National Assembly and Government of Vietnam promptly issued many important Directives and Resolutions and directed sectors and levels to implement them resolutely... These timely solutions have significantly contributed to helping Vietnam's socio-economic situation in 2023 achieve positive results, with a stable macro-economy, ensured major balances, controlled inflation... helping Vietnam continue to be an economic bright spot in the region and the world.
GDP in 2023 increased by 5.05% compared to 2022; Average CPI in 2023 increased by 3.25% compared to the average in 2022, which is a higher increase than the average in 2015, 2016, 2019 - 2022 but much lower than the average CPI increase of the remaining years in the period 2008 - 2023; Average core inflation in 2023 increased by 4.16% compared to 2022...
Regarding inflation developments in 2023, Dr. Nguyen Duc Do, Deputy Director of the Institute of Economics and Finance, said that new figures released by the General Statistics Office show that inflation developments in Vietnam in 2023 can be divided into two stages. Firstly, in the first half of 2023, year-on-year inflation tended to decrease from 4.9% in January 2023 to 2.0% in June 2023. There are several main reasons for the sharp decrease in year-on-year inflation during this period: (1) aggregate demand in the first half of 2023 was very weak, reflected in very low GDP growth (in the first quarter of 2023, it increased by 3.41%, in the second quarter of 2023, it increased by 4.25%); (2) prices of basic commodities in the world, especially oil prices, also tended to decrease sharply compared to the same period; (3) due to the impact of low money supply growth in the first half of 2023 (2.53%), while real lending interest rates remain high (6.9% in June 2023).
Second, in the second half of 2023, in addition to the gradual improvement of macroeconomic fundamentals (growth in the following quarter is higher than the previous quarter, interest rates on deposits and loans decrease sharply, money supply and credit increase faster), inflation tends to increase mainly due to a series of supply-side shocks, including: (1) tuition fee increases causing the education group price index to increase by 8.06% in September 2023 and increases in medical service prices causing the price index of this group to increase by 2.9% in November 2023 and 2.15% in December 2023; (2) rice and gasoline prices tend to increase again following world prices.
Notably, the CPI increased sharply in August-September 2023 (up 0.88% in August 2023 and 1.08% in September 2023). As a result, year-on-year inflation increased from 2.0% in June 2023 to 3.58% in December 2023. However, due to the decrease in inflation in the first half of the year, the average inflation in 2023 was only 3.25%, lower than the target of about 4.5%.
3 inflation scenarios for 2024
Forecasting inflation in 2024, Dr. Nguyen Duc Do said that in 2024, inflationary pressure is forecasted to be low for a number of reasons. Firstly, the world economy, especially the US and China, is forecast to grow more slowly, while the risk of the US economy falling into recession has not been ruled out. Historical data from 1982 to present shows that when the interest rate on 3-month government bonds is higher than that on 10-year bonds (negative yield curve), the US economy will fall into recession after 3-6 quarters. Thus, with the yield curve in the US reaching a negative level in the fourth quarter of 2022, the possibility of the US economy falling into recession in 2024 is entirely possible.
Second, with the world economic outlook not really optimistic, oil prices will hardly increase sharply, and may even decrease sharply if the US economy falls into recession. WTI oil prices in 2024 are forecast to revolve around the 5-year average of the 2019-2023 period of 67 USD/barrel.
Third, in the context of slowing global economic growth, Vietnam's exports in 2024 are also forecast to grow moderately, although only compared to the low base of 2023 (target of over 6% - slightly higher than in 2022). Moreover, because the real estate market is still in a difficult period, the industrial and construction sector in particular and the entire economy in general will also be affected and grow slowly in 2024. If GDP growth in 2024 is only around 6% as many forecasts, in the 2020-2024 period, GDP will only grow by an average of 4.64%, meaning that the economy in 2024 will still operate below its potential. This is a factor that will restrain inflation in the coming time.
Fourth, inflationary pressure from the exchange rate increase in 2024 is forecast to be small as the USD is on a downward trend and the Fed is likely to start cutting interest rates from the second quarter of 2024. Furthermore, even if the USD appreciates strongly in the world market, the SBV will intervene to stabilize the exchange rate. In other words, the monetary and exchange rate environment is neutral and will not cause prices to spike in 2024.
Based on the above analysis, it can be concluded that in 2024, there are many factors supporting inflation control. Therefore, the monthly CPI growth rate in 2024 is unlikely to be higher than the average of 0.24%/month in the 2015-2023 period.
In that context, Dr. Nguyen Duc Do proposed 3 inflation scenarios for 2024. Accordingly, in the high scenario (the world economy and Vietnam grow normally, prices of fuel, raw materials and materials are stable), the CPI may increase by an average of 0.24%/month. Inflation compared to the same period in December 2024 will be at 2.9%, and average inflation in 2024 will be at 3.5%.
In the low scenario (the world economy falls into recession in the second half of 2024 and Vietnam is strongly affected, fuel, raw materials and commodity prices fall sharply like in 2020), the CPI increases by an average of 0.05%/month. Year-on-year inflation in December 2024 will be 0.6%, while average inflation will be 2.5%.
In the medium scenario (the world economy grows slowly but does not fall into recession, Vietnam is not much affected, raw material prices decrease slightly), the CPI increases by an average of 0.15%/month. Inflation compared to the same period in December 2024 will be 1.8%, and average inflation will be 3.0%.
“In the context of the less optimistic growth prospects of the world economy and Vietnam's economy, the price of basic goods in the world is unlikely to increase sharply, and the monetary environment and exchange rate are at a neutral level, the CPI is forecast to increase by an average of 3.0% (+/- 0.5%) in 2024,” Dr. Nguyen Duc Do emphasized.
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