Three economic growth scenarios in 2021

The complex developments of the pandemic at the end of the second quarter of 2021 and the beginning of the third quarter of 2021 affected the growth momentum of Vietnam. Photo: N.Thanh

Negative impact from the fourth pandemic wave

Vietnam's economy is on track to recover in the first six months of 2021, but complex developments due to the spread of the disease in the end of the second quarter of 2021 and the beginning of the third quarter of 2021 are harming people's lives, as well as the production process of firms, as well as the recovery of Vietnam's economic growth.

Associate Prof. Dr Nguyen Khac Quoc Bao, Dean of the Faculty of Finance, Ho Chi Minh City University of Economics, said comparing Vietnam's macroeconomic context at this point in 2021 to 2020 we can easily see many differences due to the pandemic. That is, in addition to the danger of the Delta variant, this disease has hit the economic centres of industrial production, to the provinces that own important industrial parks that play a key role in the supply and value chains such as Bac Ninh and Bac Giang, and recently attacked the economic locomotive of the country - HCM City - which contributes a third to the State budget..

“To maintain the economic growth momentum, in my opinion, even though we fight the pandemic, we must ensure economic goals, especially ensuring enough economic resources to support businesses, employees and especially the vulnerable. The question is what is the adaptive strategy to promote economic incentives to ensure the goals? I believe even if we reach the goal of 70% of the population vaccinated, it will be difficult for our economy to return to the normal state it was before. Special drugs to cure diseases really create a sure prospect for the economy.

“Why in 2020, Vietnam's economy is successful while other economies in the world do not, besides decisions to fight the pandemic, the good implementation of the 'dual goal', I think is important. Important here is the resilience of the business sector, especially private firms.

“In 2020, the business sector has done a lot of things to show flexibility and endurance to maintain production, ensure the lives of workers, secure orders to promote business activities. But after more than a year of being affected by the pandemic, the accumulated resources that businesses have had for many years are now exhausted, especially in the current complex situation of the pandemic. It can be said that the weakening of businesses is a great difficulty for the economy, the pillar of the economy is shaking,” Bao said.

Favourable scenario forecast 5.4-6.1% growth

The macroeconomic report for the second quarter of 2021 of the Institute for Economic and Policy Research (VEPR) lowered the forecast of Vietnam's economic growth in 2021 compared to previous reports. Economic outlook in the last months of the year depends on the speed and scale of vaccination, the effectiveness/side effects of pandemic prevention measures, and packages to support and promote growth in the country.

Based on the actual situation, VEPR offers three forecast scenarios and in the following scenarios, it is assumed Vietnam's major trading and investment partners will successfully deploy vaccination in the early part of the year. In the fourth quarter of 2021, the outbreak was contained, economic activity was restored and trade tensions and political instability eased. Meanwhile, the situation of disease control in Vietnam may evolve in different directions.

In the scenario, the pandemic is controlled by the end of the third quarter of 2021, vaccination is deployed quickly and herd immunity is achieved in the second quarter of 2022, the macroeconomy remains stable. Economic growth for the year is forecasted at 4.5 - 5.1%.

In a favourable scenario, the pandemic is controlled in August 2021, vaccination is accelerated and herd immunity is achieved in the first quarter of 2022, the macroeconomy remains stable. Economic growth for the whole year is forecast at 5.4 – 6.1%.

The adverse scenario is the pandemic cannot be controlled and economic activities cannot return to normal until the fourth quarter of 2021, the vaccination process is implemented slowly due to a lack of supply; policies to support people and businesses, restructuring and digital transformation were promoted, but services, trade and FDI attraction recovered slowly. At that time, Vietnam's economy in 2021 would only grow from 3.5-4%.