What are the bottlenecks to economic recovery?

Many industrial parks in Hochiminh City and other Southern provinces witnessed labor shortages.

In the baseline scenario, VNDirect expected Vietnam’s GDP to grow by 4.0% YoY in 4Q21F, lower than its previous forecast of 5.5% YoY. Its forecast is based on the following key assumptions: The current wave is expected to be under control and new daily infections to fall further. Besides, Vietnam could accelerate vaccine deployment until the end of 2021. In VNDirect’s baseline scenario, about 50-60% of Vietnam's population will get at least one dose of COVID-19 vaccine by the end of 2021. In addition, domestic flights and domestic tours could be allowed to resume in late October 2021. Hanoi and Ho Chi Minh City continue to relax social distancing measures, allowing the reopening of on-site restaurants, cafeterias, entertainment areas since mid-4Q21. In particular, disbursement of public investment capital could complete over 85% of the government’s plan.

VNDirect expected the service sector to bounce back 3.0% YoY in 4Q21F (vs. a decline of 9.3% YoY in 3Q21), driven by the recovery of consumer demand, retail sales, and the reopening of non-essential services as mentioned above. For industry and construction sector, it expected this sector to grow by 5.6% YoY in 4Q21F (from a decrease of 5.0% YoY in 3Q21), mostly supported by the acceleration of public investment and the recovery of manufacturing activities after factories and industrial parks in Southern provinces allowed to reopen. Last but not least, VNDirect expected the agriculture, forestry, and fishery sector to grow by 2.8% YoY in 4Q21F (vs. 1.0% growth rate seen in 3Q21).

For 2021, VNDirect revised down its 2021F GDP growth to 2.2% in the baseline scenario (from a previous forecast of 3.9% YoY). However, there are some bottlenecks that could hinder the recovery of the economy in the fourth quarter of 2021.

First, the share of people fully vaccinated with 2 doses of vaccine is still low (13.2% of Vietnam’s population). As a result, the reopening of many economic activities has been delayed, including tourism, entertainment, on-site dining, art & sports activities. In addition, the vaccination rate is still very low in rural areas. Therefore, the risk of a resurgence of COVID-19 pandemic remains very high. This is a major obstacle to the reopening of intercity passenger transport. These challenges hinder the recovery of the service sector, which accounted for over 40% of Vietnam’s GDP, in the fourth quarter of 2021 and even into the first quarter of 2022.

Second, consumers’ income declined due to the prolonged pandemic, greatly affecting domestic demand in the 4Q21, the most important consumption season of the year.

Third, anti-pandemic policies are inconsistent, rapidly changing, and difficult to predict. For instance, each province has different regulations on pandemic control, causing difficulties or even disruption of the production supply chain. In addition, the difficulty in predicting policies make business not proactive in planning production and reopening operations, thus slowing the recovery process of the economy.

Fourth, many industrial parks in Hochiminh City and other Southern provinces witnessed labor shortages after a lot of workers returned to their hometowns to flee from the current wave of infections. Due to the labor shortage, the recovery of industrial production could take place more slowly.