From Inflation to Recession

The intensified impact of the global financial crisis changed growth projections dramatically. Virtually no country, developing or developed, has escaped the impact of the widening crisis. Growth in developing countries, whose economies had been expected to expand by 6–7 per cent in 2009, has been marked down to 3–4 per cent and many economies of high-income countries entered into recession in 2009. The current difficulties of the global economy have adversely affected the lives of most people, but the urban poor are bearing a larger and heavier part of the impact. Women, children, migrant workers are the most vulnerable, less protected, and face the greatest difficulties in recovering from the crisis, regardless of policy support provided by the government (World Bank 2009).

Although countries that entered the crisis with stronger fundamentals and less integration into the global economy may have been less affected, Vietnam's economy was in a tough time in 2009. This is the largest global recession Vietnam has experienced since its market transition began in 1986. Foreign direct investment has slowed while exports and remittances from Vietnamese abroad were dramatically falling. It would be very hard for the country to achieve high economic growth. Yet, the economy still grew at a positive and relatively high rate, at 5.34 per cent in 2009, the lowest in seven years. The growth was due mainly to huge amounts of capital and favourable loans provided by the government for state enterprises under the economic crisis. Indeed, this level of growth could not have been achieved without the government's stimulus packages.

In May 2008, the Vietnamese Government was preoccupied with curbing double-digit inflation as oil and commodity prices surged to unprecedented levels not seen in decades. The State Bank had to implement a series of interest rate hikes to rein in inflation. The tight monetary policies were adopted in the rest of 2008, and then Vietnam was fighting a different kind of battle — recession. The financial crisis has already led to a slow down in foreign direct investment, a reduction in export earnings, a reduced number of tourists, and a decline in remittances from migrants abroad. With exports plunging and a sharp drop in investment, which has been the driver of growth, hundreds of thousands of workers lost their jobs.