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Economic Watch: Russia-Ukraine conflict hits Vietnam's economy

May 08, 2022

Hanoi [Vietnam], May 8: The ongoing conflict between Russia and Ukraine has disrupted supplies of fuels and materials to Vietnam, pushing up the country's inflation, as well as adversely affecting the country's economic growth, local experts have said.
While supply disruptions caused by the global pandemic COVID-19 have not come to an end, firms in Vietnam have to face increasing thinner supplies of fuels and materials for production due to the conflict, Le Hoang Anh, a senior researcher at the Ho Chi Minh City University of Banking, told Xinhua on Friday.
"The Russia-Ukraine conflict has lifted production costs of different goods, resulting in inflation in many nations, including Vietnam, and hampering their economic growth," Anh noted.
Since Russia launched a special military operation in Ukraine on Feb. 24, many countries have imposed rounds of sanctions including severe financial restrictions on Moscow, which has led to delay and disruption in payments through banks as well as in goods delivery, and surge in transport cost.
"It is hard for companies to fulfill already-signed contracts and to ink new ones. Many goods orders have been delayed or cancelled," Truong Dinh Hoe, general secretary of the Vietnam Association of Seafood Exporters and Processors, said at a seminar on Vietnam's import-export held on April 20.
Vietnamese enterprises have had difficulties in importing certain goods from Russia, and in exporting products to Russia and Ukraine. Meanwhile, they have had to encounter fiercer competition in buying materials from other markets, Pham BinhAn, deputy head of the Ho Chi Minh City Institute for Development Studies, said at the seminar.
"Rapid increase in prices of materials has fueled inflation pressure. Higher inflation pressure plus risks in logistics and international payment has placed a heavy burden on import and export activities," An stated.
An's statement was echoed by Nguyen Bich Lam, former head of the General Statistics Office under the Ministry of Planning and Investment.
"The Russia-Ukraine crisis is one of the main reasons for the increase in commodity prices in the world market," Lam told local reporters on Monday. "The production output and export market share of some fuels and materials for production and consumption such as petroleum, gas, wheat, corn, aluminum and nickel of Russia and Ukraine are very big."
If the tension persists, Lam continued, "it may cause difficulties for the supply of these materials and fuels in the near future, affecting Vietnam's economic recovery and development."
In the first four months of 2022, prices of petroleum and oil products in the Vietnamese markets rose 48.8 percent from the same period last year, contributing 1.76 percentage points to the overall consumer price index (CPI) of 2.1 percent.
The country has planned to keep CPI below 4 percent in 2022, while experts said it might be difficult to achieve.
"Besides prices of petroleum and gas, prices of food, cotton, animal feeds, fertilizers, metals and construction steel will put great pressure on Vietnam's inflation control target this year," said Lam.
Similarly, To TrungThanh, a local expert at the National Economics University, during a conference on Vietnam's economy in 2021 and 2022 held in April, also said that the Russia-Ukraine conflict has pushed up energy prices, greatly affecting Vietnam's production and pressurizing its inflation target this year.
"Vietnam is likely to reach the economic growth target of 6.5 percent in 2022, but it is difficult to achieve the CPI target of below 4 percent," Thanh stated.
The combined trade of Vietnam with Russia and Ukraine stood at 7.6 billion U.S. dollars in 2021, accounting for 1.2 percent of Vietnam's total import-export turnover, according to data from the Vietnamese Ministry of Industry and Trade. Specifically, the two-way trade between Vietnam and Russia was over 7.1 billion dollars, up 25.9 percent from 2020.
According to Lam, with the Russian market, Vietnam enjoyed a trade surplus of more than 2.6 billion U.S. dollars last year. Its key items exported to Russia included phones and components; computers, electronic appliances and components; and garments and textiles. Export of these three groups of Vietnamese products to Russia is being affected the most by the conflict.
The Russia-Ukraine conflict has dealt a major shock to commodity markets, altering global patterns of trade, production, and consumption in ways that will keep prices at historically high levels through the end of 2024, said the World Bank (WB)'s latest Commodity Markets Outlook released on April 26.
Last month, the WB lowered its forecast for Vietnam's economic growth this year to 5.3 percent, down from the projection of 6.5 percent it made last October.
Source: Xinhua