Vietnam economic outlook: Things gradually falling into place

Although Vietnam’s economy has recorded many positive signs of recovery, it will face some challenges ahead.

Steady recovery

On a month-on-month basis, the service sector witnessed softly recovery with gross retail sales of consumer goods and services increasing 18.1% mom (-19.5% YoY). Regarding the industrial sector, the IHS Markit Purchasing Managers' Index (PMI) of Vietnam in Oct 2021 stood above 50 for the 1st time since Jun 2021, indicating the recovery of industrial activities since Oct 2021. Also, Vietnam’s Oct Index of Industrial Production (IIP) rose 6.9% mom (-1.6% YoY), increasing from a growth rate of 5.0% mom (-5.5% YoY) seen in the previous month.

Higher trade surplus

Per GSO data, export value edged up 1.1% mom (0.3% YoY) to about US$27.3bn in Oct 2021. As for imports, Vietnam’s import spending dropped 1.1% mom (vs. a 3.6% mom decline in Sep 2021) to about US$26.2bn (8.0% YoY). As a result, Vietnam increased net exports to US$1.1bn in Oct 2021 from a net export of US$0.5bn in the previous month.

Per GSO data, export value edged up 1.1% mom (0.3% YoY) to about US$27.3bn in Oct 2021.

More stimulus packages expected

There is still room for more fiscal policy, in VNDirect’s view, following (1) Vietnam's public debt-to-GDP ratio at year-end of 2020 is much lower than Vietnam’s public debt ceiling of 60% of GDP, (2) government bond interest rates are at historic lows and (3) inflation is well-managed.

The fiscal stimulus packages could include cash subsidies for people negative-affected by the COVID-19 pandemic, tax reduction (value-added tax, corporate income tax), and an increase in the amount of public investment in transport infrastructure and social-housing projects development.

Challenges ahead

Some bottlenecks that could hinder the recovery of the economy still exist, including (1) domestic consumption demand staying low in the 4Q21 due to lower consumers' income amid the prolonged pandemic and (2) many industrial parks in Southern provinces still face labor shortages.

In addition, the number of daily new cases has bounced back strongly since late-Oct amid the reopening of the economy. The risk of a resurgence of the COVID-19 pandemic could halt the reopening of the economy. As uncertainties emerge, VNDirect revised its forecast for 4Q21 GDP growth to 3.3% from a previous forecast of 4.0%.