Vietnam 2021 GDP growth forecast revised down to 5.8%: KB Securities

Vietnam – Forecast GDP growth in 2021 (%)

Vietnam's economy reached 6.61% growth in 2Q, equal to the 2Q growth from 2017 to 2019. Compared to initial expectations and estimates, with the main reason that the return of the Coronavirus caused many large provinces and cities to implement social distancing, the growth of 6.61% is still considered an encouraging achievement. For the first six months of the year, Vietnam's GDP rose 5.64% YoY.

From the demand side, consumption in 1H21 was significantly affected by the resurgent COVID-19 cases, while private investment and FDI posted more rebounding signals from the low base of the economy in 2020.

The final consumption increased 3.18% YoY (smaller than the 4.6% growth in 1Q), while sales growth rose 3.18% YoY. Retail and service revenue increased by 4.04% YoY (down from 5.3% in Q1). This shows that consumption in 2Q has been affected to a certain extent by the developments of the pandemic, although impacts are not as severe as in 2Q last year. 

Meanwhile, social investment capital in 2Q went up 7.8% YoY. Notably, the increase was equally contributed by all three sectors: the State (8.3% YoY), FDI (6.9% YoY), and private sector (8.5% YoY). KB Securities said, this is different from the volatility of social investment capital in 2020 when the FDI and private sectors stagnated, while the capital from the state budget spiked 32% YoY every quarter.

From the supply side, the industrial and construction sectors rebounded, while the service sector maintained a low growth rate during the pandemic.

The industry and construction grew 10.28% YoY in 2Q (outperforming the growth of 6.3% YoY in 1Q), strongly boosted by the processing and manufacturing industry (13.84% YoY). This is also consistent with the data showing that there was a breakthrough in export growth of FDI enterprises from the beginning of the year to June 15, 2021, with a total value of VND105.82 billion (35% YoY). Correspondingly, the turnover of main export products recorded a surge in machinery, equipment, and other auxiliary tools (68% YoY), computers (25% YoY), and smartphones (15.5% YoY). KB Securities assessed, the recovery in export activities of Vietnamese enterprises in general, and FDI enterprises in particular was mainly supported by the recovering demand of major trading partners given vaccine rollout programs.

The agriculture, forestry, and fishery increased by 4.11% YoY in 2Q (vs 3.2% in 1Q), which is also the highest 2Q growth in the last three years. The prices and export volume of agricultural and fishery products tend to turn up thanks to a strong recovery in demand. 2Q average selling price and export volume of rice increased by 12% and 90% respectively. Meanwhile, export turnover of wood & wood products and seafood also rose 62% and 13.6% respectively in 1H21.

The service sector grew 4.3% YoY in 2Q (higher than the growth of 3.34% in 1Q but lower than the average growth rate of 6.8% in 2017-2019). The return of COVID-19 caused many negative impacts on hospitality and catering services (-4.5% YoY), arts and entertainment (-4.3% YoY), and logistics (-1.1% YoY). Meanwhile, finance, banking, and insurance activities (9.9% YoY) grew strongly thanks to the good performance of investment channels.

The export growth, especially in the field of processing-manufacturing and traditional industries (textiles, footwear, wood, and fishery), is expected to rebound thanks to the increasing consumption demand in developed countries. This is the main driving force for the economy in the last six months of the year, besides other motivations such as FDI attraction and public disbursement. On the other hand, it is difficult for domestic demand to recover because the pandemic still has many potential risks to the economic growth prospects in 2H21. 

In KB Securities’s view, the speed of implementing the large-scale vaccination program and the time when Vietnam successfully repels the current pandemic are two key factors affecting the economic growth in the last six months of the year. Accordingly, KB Securities lowered its forecast for 2021 GDP growth from 6.5% (in April 2021 report) to 5.8%, reflecting the impact of the ongoing fourth wave of the Coronavirus in many provinces and cities, where the Government had to apply the social distancing protocols under the Directive No. 16.