Vital to safeguard businesses from recession

SGI

The sudden eruption of the Covid-19 epidemic has shaken economies of most countries across the globe, with Vietnam not escaping its negative impact either.

It is important that businesses have solutions to change the mode of production and business, not policies.

It is important that businesses have solutions to change the mode of production and business, not policies.

Global economic growth will certainly be lower in 2020, yet the Prime Minister has said there is no basis for adjustment to the growth rate. Therefore, it is now vital to find ways to ‘recession-proof’ businesses in particular and the economy in general.

Uncertainty in world economy

Since mid-February, the price of gold in the international market has been steadily increasing, and on 24 February, the gold price soared to USD 1,688 per oz., and later hovered to around USD 1650 per oz. Gold price has long been a true monitor of the financial situation in the world, as it is now. Within a short period of time, gold price has reached a record high of USD 16,000 per oz., and set a seven year high, indicating serious uncertainty in world economy as the Covid-19 epidemic spreads across more than fifty countries with no signs of abating.

Recent economic forecasts have been rather pessimistic and in its world economic outlook released in January, the International Monetary Fund (IMF) forecast that the global economic growth in 2020 would go down to 3.3%, reducing by 0.1% compared to its earlier forecast. The IMF chief has recently warned that global economic growth could fall by 0.1% to 0.2% due to the spread of Covid-19 across the globe.

The Chinese government has predicted that its economic growth this year would drop by 0.3% to 5.8%. Some other international organizations are less optimistic. Deutsche Bank, for instance, predicts that China's growth rate would plunge by 1.5% in the first quarter, compared to the same period in 2019, and the global economic growth would plummet by 0.5%. Other institutions like Goldman Sachs, Moody's, Coface, BNP Paribas Cardif and International SOS predict that global economic growth would decline by 0.3% to 0.7% in 2020.

In the wake of the epidemic, the Vietnamese economy has suffered serious disadvantages, as have other countries. The Ministry of Planning and Investment has suggested a scenario that the country's growth rate would be between 6% and 6.3%, instead of the previous forecast of 6.8%. Officials have come up with this prospect based on their consideration of possible effects of the disease on different aspects in Vietnam. Of greater impact is the supply chain from China that has long played a very important role in distribution of components and semi-finished products to different countries around the world. Vietnam also imports a large volume of materials from China.

Dr Tran Du Lich, a member of the Prime Minister's think tank, has pointed out that Vietnam imports from China of unfinished material for computers, electronic items, telephone components, fabric and other plastic materials, make up 50% to 60% of all imports. At the same time, China is one of Vietnam's major export markets. Therefore, the coronavirus outbreak has badly affected several production and export sectors of Vietnam. Also, concerns about the disease has made people go out less, causing less consumption of products, and fewer tourists are using services such as transportation by air, road and railway. All these have created a severe slowdown in the tourism industry, retail outlets and logistic supply chain.

Avoiding possible recession

Difficulties for the economy are getting obvious. However, the Prime Minister asked his financial advisers at the 25 February meeting of the Financial Policy Advisory Council for a “vaccine” to inject the Vietnamese economy against possible global recession. The goal is to maintain the socio-economic growth, stabilize macro-economic areas and guarantee people's living standards, while fighting the disease. The Prime Minister’s advisers suggested it was not advisable to jump into making adjustments to the monetary policy and that a big change to macro-economic features would lead to negative consequences.

Support policies could help to some extent, but these cannot cope with losses. Vietnamese businesses should foresee possible scenarios so as to take proper preventive measures for  production and business activities and be more proactive in improving their business situation.
Speaking to Saigon Investment, Dr Truong Van Phuoc, former acting Chairman of the National Financial Supervisory Commission, said that several measures should be taken urgently to cope with all the problems that are arising. One of the most important measures to promote economic growth would be to restore market trust in consumers, open doors to welcome international tourists into Vietnam and instill more confidence in the people.

Some countries like China have resorted to tackling monetary policy to cope with economic problems, but most countries in the world are using the fiscal policy rather than the monetary policy. Vietnam does not need to expand the monetary policy because liquidity is already strong, with many big loans available for businesses to meet their needs. Businesses do not want to take loans now because the disease has hurt their production, making it hard for them to expand their production.

Recently, the State Bank of Vietnam (SBV) has asked credit institutions (CIs) to provide significant support for businesses by putting aside debts, reducing debts and interest rates. These measures could make it possible for businesses to overcome current problems and setbacks.

Dr Bui Quang Tin, lecturer at Banking University in Ho Chi Minh City, said assistance from SBV and CIs during this difficult period would make businesses more confident. Especially, export companies may find it difficult to pay debts to banks with the import and export market facing hard times. Rescheduling the maturity of loans or reduction or exemption of interest would ease the current situation and help businesses cope with their problems.

Translated by Nguyễn Gia

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