Solutions to improve economic integration efficiency in volatile times

Vietnam's economy, with its high openness and always affected by international conditions, is forced to improve its capacity and effectiveness of economic integration in order to seize opportunities, overcome challenges, and move towards sustainable development.

The Uncertainty of the World Economy

Since the beginning of 2024, the world has witnessed a series of risks in many aspects: geopolitics, economic policy, climate change, trade competition... directly affecting global growth. The GPR index measuring geopolitical risks in the past 2 years has been above the 20-year average.

GPR Index

Mr. Pham Quang Anh, Director of Vietnam Commodity News Center, said: “Geopolitical tensions in the Middle East and the Russia-Ukraine conflict, although not new events, still have a profound impact on the global economy. Energy prices are rising. At the peak of the year in March, world oil prices even exceeded 90 USD/barrel. Freight rates have also increased. Freight transport on the Far East - Northern Europe route in mid-May was about 20% higher than at the end of April.

Mr. Pham Quang Anh, Director of Vietnam Commodity News Center

Climate change is also one of the uncertain factors that threaten the possibility of supply chain disruption. Extreme weather conditions occur everywhere. Prices of food, foodstuffs, and feed ingredients are also strongly affected when supplies are affected.

The uncertainty makes the problem of growth and inflation control in major economies such as the US and Europe (EU) more difficult than ever. At the end of last year, the market had believed that the US Federal Reserve (FED) would cut interest rates for the first time in March 2024. But so far, the highest interest rate in more than a decade has been maintained to deal with inflation.

The engine of the global economy, China, is also facing a prolonged period of weak growth. Recovery efforts are becoming more blurred as the US-China trade rivalry intensifies.

In the above context, the International Monetary Fund (IMF) forecasts that global economic growth will decrease from 3.5% in 2022 to 3.0% in 2023 and continue to decrease to 2.9% in 2024, significantly lower than the historical average of 3.8% from 2000 to 2019.

As an emerging economy with a tendency towards deep economic integration, Vietnam is not outside the challenges from the above fluctuations.

Vietnam's competitiveness and economy are not without challenges.

In the first months of 2024, Vietnam's economy has also faced some existing difficulties. The rising USD caused the interbank exchange rate in the first quarter of 2024 to increase by 2.12% and the central exchange rate to increase by 0.57% compared to the end of 2023, putting pressure on import businesses. Although inflation remains under control, it has also shown signs of resurgence, with the consumer price index (CPI) increasing by 4.44% in May compared to the same period last year, reaching a 16-month high.

Market cash flow tends to focus on safe assets such as gold and savings, due to the increased demand for shelter from world fluctuations, limiting the capital flow for production and business activities.

However, Vietnam's economy still achieved some remarkable achievements. GDP growth in the first quarter was the highest in 5 years, reaching 5.66%. In particular, export activities were positive. In the first 5 months of 2024, the total export turnover of goods was estimated at 156.77 billion USD, up 15.2% over the same period last year, as a result of extensive cooperation efforts with the international market.

To date, Vietnam has successfully signed 16 Free Trade Agreements (FTAs) with more than 60 partners, most of which are large economies accounting for nearly 90% of global GDP. The trade surplus has somewhat limited exchange rate pressure in a volatile environment, thereby promoting growth. A report by the ASEAN+3 Economic Research Office (AMOR) also forecasts Vietnam's GDP growth in 2024 to reach 6%, ranking 3rd in the bloc.

AMOR forecasts economic growth of ASEAN countries in 2024

However, the Vietnam Commodity Exchange (MXV) believes that the above growth figures are still not enough to create a breakthrough for sustainable development, or help our country escape the risk of the middle-income trap. The growth rate is quite positive, but the IMF's forecast for the size of Vietnam's economy in 2024 is about 469.67 billion USD, ranking 5th in Southeast Asia. In terms of GDP per capita, our country is currently only ranked 6th in the bloc.

This raises the urgency of strengthening measures to improve economic efficiency, especially towards quality and effective integration in a period of unpredictable world developments like today.

Solutions to enhance sustainable economic integration

According to the World Bank (WB), Vietnam is a favorite destination for foreign manufacturers and is attracting huge amounts of investment, but its growth rate of around 5.5% is lower than its potential. For example, compared to Malaysia's position of 27th, which is the highest ranked country in the region in the Global Investment Index (GOI), Vietnam's position is only 65th.

Therefore, the inevitable task of our country is to improve the business environment and competitiveness in order to enhance its position in international economic integration. To do so, it is necessary to create favorable procedures, legality and macroeconomic stability.

Global Investment Index (GOI) Ranking of 10 Emerging and Developing Asian Countries

“In the current period of great global economic fluctuations, policies to promote quality growth, create a favorable environment, motivate businesses to innovate, and be ready to expand production and business will need to be focused on. Along with that, solutions to stabilize commodity prices and control inflation should not only stop at monetary policies, but also need to promote proactiveness from businesses themselves,” said Mr. Pham Quang Anh.

Key import and export raw materials will need to be connected with the world to help the production units participate in price insurance through the purchase and sale of futures contracts from the Exchange, thereby proactively controlling costs and prices. Vietnamese specific commodities such as rice, pork, etc. also need specialized trading floors to make transactions transparent and create market stability.

In the long term, the macro environment that attracts international investment also needs to be linked to the circular economy in the context of climate change. Without adaptation, Vietnam's economic growth will be far behind the world, because trading partners are creating many barriers in terms of carbon border tax mechanisms.

According to the World Bank, climate change could cause Vietnam to lose about 12% to 14.5% of its GDP each year by 2050 and could push 1 million people into extreme poverty by 2030.

On the positive side, our country has taken concrete actions. For example, Vietnam is the first East Asia-Pacific country to receive a payment of 51.5 million USD for verified emission reductions (carbon credits) from forest protection and planting.

With the above advantages, it is necessary to further accelerate the construction of a market for trading carbon credit products and support businesses in transforming to sustainable production and business models. Only then will the creation of a truly stable and internationally standardized macroeconomic environment contribute to improving competitiveness.

Source: https://congthuong.vn/giai-phap-nang-cao-hieu-qua-hoi-nhap-kinh-te-trong-thoi-ky-bien-dong-323240.html