Global Economy: 40000 Factories In Vietnam'S Textile Industry Shut Down And Exports Declined For Five Consecutive Months

Bloomberg reported that Vietnam's exports fell for five consecutive months in July, the longest decline in 14 years. This foreign trade dependent economy may not achieve the economic growth target of 6.5% this year.

According to the data released by the Vietnam Bureau of Statistics on the 29th, Vietnam's exports shrank by 3.5% in July, and its exports in the first seven months of 2023 fell by 10.6% year-on-year to US $194.73 billion, while its imports fell by 17.1% to US $179.5 billion. Among them, the export volume of smart phones, Vietnam's largest export product for foreign exchange, declined by 18.3% from January to July 2023, to US $27.8 billion.

Data shows that Vietnam's overall inflation rate in July did not change much compared with the same period last year, which was 2.06%. House prices rose 1.9% year on year, and the core inflation rate excluding food, fuel, medical care and education services rose 4.1% year on year in July. This year, the Vietnamese government set the goal of annual GDP growth of 6% to 6.5%, while in the first quarter, Vietnam's GDP grew by 3.32% year on year. The decline in exports made Vietnam, which relies on foreign trade, face the risk of failing to achieve this goal.

Vietnam's Ministry of Industry and Trade had previously warned that the overcast global economic situation led to weak demand, which may damage Vietnam's export pattern. Marketscreener, an American investment research institution, quoted a Vietnamese newspaper as saying that the Vietnamese economy may continue to face some risks before the end of this year.

The textile industry is the "backbone" industry to solve Vietnam's employment rate, but this year, the industry also faces many difficulties. According to the data of the Ho Chi Minh City Business Association, Vietnam's exports fell by 11.9% in the first quarter of this year, of which the export orders of the textile industry dropped by 70% - 80%, resulting in the shutdown of 42900 factories. In the second quarter, export orders of Vietnam's textile industry fell by another 80%. According to the Vietnam Bureau of Statistics, more than 200000 workers lost their jobs in the second quarter of this year. According to the Vietnam Textile and Clothing Association, due to the global economic slowdown, Vietnam's textile exports to the United States fell by 27.1% in the first five months of 2023, and exports to Canada and the EU fell by 10.9% and 6.2% respectively.

At present, the textile enterprises have insufficient cash flow and are difficult to obtain loans, which leads to bad debts and will experience a difficult period in the future. Compared with Vietnam's competitors in Asia, the 9% - 11% loan interest rate of the National Bank of Vietnam further increased production costs.

The main challenge facing Vietnam's textile industry is that labor is no longer cheap. The rising cost of living makes it difficult for Vietnam to continue to maintain a competitive model based on "cheap labor". At present, the average monthly wage of Vietnamese textile workers is about 300 US dollars, which is much higher than the 95 US dollars in Bangladesh, 190 US dollars in Cambodia and 145 US dollars in India.

Bloomberg said that stable inflation has made it possible for the Central Bank of Vietnam to further reduce borrowing costs to support enterprises, and the Vietnamese government is also looking for ways to boost the economy. On the 27th, Vietnamese Prime Minister Fan Mingzheng asked the Central Bank of Vietnam to formulate measures to improve bank loans by the end of this month, and again called for reducing loan interest rates to stimulate business activities. The National Bank of Vietnam has cut interest rates four times this year, and expressed concern about bad debts, banking system pressure and currency, and will adjust the loose monetary policy.