Two GDP growth scenarios for Vietnam: VNDirect

The fourth wave of Covid-19 infections greatly impacted on all aspects of Vietnam’s economy, especially in the service sector and labour market. As such, VNDirect has revised its forecasts and present two scenarios for Vietnam's economic outlook in 2H21F.

Baseline scenario

In the baseline scenario, this company revised down Vietnam’s 2021F GDP growth to 5.5% from a previous forecast of 6.5%. Its forecast is based on the following key assumptions:

First, Vietnam would completely contain the fourth wave of COVID-19 pandemic in 3Q21.

Second, Vietnam could effectively block the new wave of infections in industrial zones and maintain production supply chain to be not disrupted by the pandemic.

Third, Vietnam could accelerate vaccine deployment until the end of 2021. In its baseline scenario, about 50% of Vietnam's population will get at least one dose of COVID-19 vaccine by the end of 2021.

Fourth, Vietnam could pilot reopening some tourist areas, such as Phu Quoc island, for international tourists since the fourth quarter of 2021.

Fifth, large countries, such as the US, the EU and China could keep accelerating vaccine deployment and continue to reopen their economies.

In its baseline scenario, the services sector could be hit hard by the fourth wave of infections. Some service sub-sectors, including; accommodation and food service activities; transportation and storage; arts, entertainment and recreation; administrative and support service activities, may record negative growth in 3Q21F before rebounding in 4Q21F after the government eases social distancing rules in southern provinces and allows non-essential services to reopen. VNDirect forecasted the services sector rising 3.2% yoy in 2H21F, lower than the 4.0% and 3.6% rate seen in 1H21 and 2H20 respectively.

Meanwhile, the industry and construction sector would also be negative impacted by the fourth wave of the pandemic because some factories had to suspend operation for several days to prevent the spread of coronavirus. However, VNDirect believed that the growth rate of industry and construction sector would remain strong in 2H21 thanks to (1) effective policies and solutions to prevent the spread of coronavirus in industrial zones and maintain production supply chain to be not disrupted by the pandemic (2) higher external demand amid a recovering global economy (3) an increase in public spending, especially for infrastructure developments. We expect the industry and construction sector to increase by 8.3% yoy in 2H21F (vs. the 8.4% rate seen in 1H21).

The agricultural, forestry and fishery sector to grow by 4.0% yoy in 2H21F (vs. 3.8% rate seen in 1H21) due to the following reasons: (1) strong external demand for Vietnam’s agricultural products, especially seafood such as pangasius and shrimp; and (2) strong growth of livestock sub-sector amid sustainable recovery of pig herd size, said VNDirect.

Worst-case scenario

VNDirect’s worst-case scenario is based on the following key assumptions: The fourth wave of infections would last longer. Other provinces in Northern and Central Vietnam could be ordered to apply the government’s Directive 16 to prevent the coronavirus spread. More industrial parks must suspend due to the impact of the COVID-19 pandemic. Low vaccination rate due to shortage of vaccine supply. Only less than 30% of the population is immunized with at least one dose of the COVID-19 vaccine. Vietnam would not pilot welcoming tourists this year. The reopening of major economies in the world, such as the US and China, could be halted as infections dramatically increase due to the Delta variant.

In the worst-case scenario, the pandemic’s negative impact on the services sector would be prolonged and exacerbated. In this scenario, VNDirect forecasted the services sector to expand by only 2.4% yoy in 2H21F (vs. 4.0% in 1H21 and 3.2% in baseline scenario). The industry and construction sector could rebound at a slower pace due to global supply chain disruptions and lower external and domestic demand. It forecasted the industry and construction sector to grow by 7.3% yoy in 2H21F (vs. 8.4% in 1H21 and 8.3% in baseline scenario). For the agricultural, forestry and fishery sector, it forecasted an expansion of 3.7% yoy in 2H21 (vs. 3.8% in 1H21 and 4.0% in baseline scenario) due to lower external demand for Vietnam’s agricultural products.