Vietnam Economy Expected To Recover in 2022 Despite Short-Term Setbacks
|ADB's GDP growth forecast for Vietnam. Photo: Hanoitimes|
Vietnam’s economic growth forecast this year is revised down to 3.8% from the previous estimated 6.7% in April due to the prolonged Covid-19 outbreak but would rebound strongly to 6.5% in 2022.
ADB Country Director for Vietnam Andrew Jeffries gave the statement at the online launch of the latest report Asian Development Outlook (ADO) 2021 Update held today [September 22].
According to Andrew, growth picked up in the first half of 2021, largely because of higher trade volumes, but slowed down in the second half of the year as the fourth wave of the pandemic took a toll on business and the labor market.
“The prolonged Covid-19 pandemic and extended lockdowns have weakened consumption and investment, hampering Vietnam’s growth prospects," said Andrew. “But the Vietnamese economy will bounce back if the Covid-19 pandemic is brought under control by the end of 2021 and 70% of the country’s population are vaccinated by the second quarter of 2022,” he added.
ADB remains bullish on the country’s prospects in the medium and long term. Growth could be aided by a revival of domestic demand, an acceleration in the disbursement of public investment funds, and an expansion to new export markets thanks to multiple free trade agreements and the expected global economic recovery, according to Hanoitimes.
The near-term outlook remains challenging, with the main risk being a prolonged pandemic, especially if the country’s vaccination rate does not increase significantly. Growth also depends on the government’s timely delivery of necessities, such as food and cash, to vulnerable groups affected by the pandemic, Andrew stated.
“Vietnam can benefit from removing administrative hurdles to business and people, and accelerating digital transformation, which will help improve the efficiency of pandemic containment measures and support a sustainable economic recovery this year and next,” he added.
Clear pathway to reopening key to keep hold of investors
|ADB Country Director for Vietnam Andrew Jeffries at the online meeting. Photo: Nguyen Tung|
Principal Country Economist for Vietnam Nguyen Minh Cuong noted the fast recovery of Vietnam’s main overseas markets, particularly the US, EU, and China, will support exports, especially textiles, garments and footwear, electronics, and mobile phones.
“But the lockdown on major industrial hubs in the Mekong Delta will constrain production capacity, triggering a shift of orders to other countries, as 18% of European companies doing business in Vietnam already did in July and August,” Cuong said.
On this issue, ADB Director Andrew said Vietnam remains an attractive investment destination in Southeast Asia.
He noted the country is not the only one in the region and the world facing difficulties from the pandemic.
“Foreign investors come to Vietnam as they look at the fast-economic expansion rate and growing middle class,” he told The Hanoi Times, noting foreign companies’ bases in Vietnam are not only for exports but also to meet domestic needs.
Vietnam’s economy is forecast to grow by about 4.8 percent in 2021
|Photo: Vietnam Investment Review|
Vietnam’s GDP is expected to expand by about 4.8 percent in 2021, although it has posted a robust economic performance in the first half of this year. This forecast, two percentage points lower than the projection made by the World Bank Group in December 2020, accounts for the negative impacts of the ongoing COVID-19 wave on economic activity.
The forecast was made in the latest edition of Taking Stock – the World Bank’s biannual update on Vietnam’s economic performance released today – highlighting the economic pains associated with the most recent COVID-19 outbreak. The mobility measures adopted by the government to contain the pandemic have hit the economy domestically.
In July, retail sales fell by 19.8 percent year-over-year (y/y), the largest drop since April 2020, while the Purchasing Managers’ Index also declined significantly. On the external front, the merchandise trade balance turned into deficit over the past few months while foreign investors have demonstrated some caution. It appears that disruptions in industrial zones and supply chains caused by the broad-based COVID-19 resurgence have forced exporters to close factories temporarily or delay production.
“Whether Vietnam’s economy will rebound in the second half of 2021 will depend on the control of the current COVID-19 outbreak, the effective vaccine rollout, and the efficiency of the fiscal measures to support affected business and households, and to stimulate the recovery,” said Rahul Kitchlu, World Bank Acting Country Director for Vietnam. “While downside risks have heightened, economic fundamentals remain solid in Vietnam, and the economy could converge toward the pre-pandemic GDP growth rate of 6.5 to 7 percent from 2022 onward.”
The report suggests that the authorities should address the social consequences of the COVID-19 crisis by improving the depth and effectiveness of social protection programs. They should also watch out for rising risks in the financial sector, with particular attention to non-performing loans. Greater attention should be given to fiscal policy since policymakers will need to find the right balance between the need to support the recovery of the economy and the necessity to maintain a sustainable level of public debt.
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