Vietnamese economy still looks positive from 2022 onward

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Due to the influence of the Covid-19 epidemic, the Vietnam economy is not very positive in the first 8 months of 2021. In which, more than 85,000 enterprises were forced to leave the market; trade deficit is fixed at 3.71 billion USD in the first eight months of 2021 as the country's imports rose 33.8 percent year on year to 216.26 billion USD while exports raked in 212.55 billion USD, up 21.5 percent; tourism activities were almost completely frozen...

Under VDSC’s base case assumptions, it thinks strict stringent restrictions being in place in Aug 2021, a ramp-up in vaccinations in HCMC suggest the reopening may be gradual throughout 4Q21. Hence, household consumption and the services sectors will contract in 3Q21. In 4Q21, without stronger policy supports, a weak rebound in economic activity is expected due to the scars of the pandemic such as slow labor market normalization, supply chain disruptions, and worsening public sector, corporate, and household balance sheets. 

A continued ramp-up in vaccinations in HCMC suggests the reopening may be gradual throughout 4Q21.

VDSC cut Vietnam’s 2021 GDP growth forecast to 4.0% from its previous estimate of 5.6% with estimates for manufacturing, consumption, and investments trimmed to reflect the negative impacts of restrictions placed on domestic movements and operational capacity as well as precautionary relaxation of COVID-19 measures. In addition, the risk of vaccine supply constraints could put Vietnam under pressure in recouping economic ground in 4Q21. On the other hand, this stock company believes quicker vaccine completion and further policy supports should reduce the risk for further downgrades.

However, the World Bank said 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.

Mr. Rahul Kitchlu, World Bank Acting Country Director for Vietnam, said that 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. 

In 2022, VDSC thinks there will be a low possibility of broad-based lockdowns, which provides the foundation for a better growth outlook. To be specific, its base case assumes that Vietnam will come into a “New Normal” situation – when 70% of the population complete their vaccinations – which would allow most economic sectors to reopen, inter-provincial travel to resume, and with fewer restrictions on social activities. It forecasts Vietnam’s GDP to expand 6.5% in 2022, with a rebound in manufacturing and private consumption spending. Risks to its forecast remain skewed to the downside due to uncertainty over the trajectory of Covid-19, rising unemployment and supply chain disruptions, lasting economic scars among households and businesses, and more limit ed policy space. As the possibility of Delta and new-variant waves accompanied by strict Covid-19 restrictions remains a distinct risk in 2022, the recovery will remain bumpy with certain sectors like tourism, travel, and retail recovering less quickly.

“While downside risks for Vietnamese economy 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", Mr. Rahul Kitchlu forecasted.