What is the main driver of GDP growth by end-year?

Vietnam's 9M21 exports reached USD240,524 billion (18.8% YoY).

9M2021 public investment disbursement reached VND276.3 trillion (-0.8% YoY), completing 57.3% of the plan assigned by the Government. KB Securities expected the public disbursement would be accelerated for the following reasons. First, exports and domestic consumption have slowed down due to the impact of the pandemic. In that context, promoting public investment is the fastest and most feasible way to boost economic recovery. The General Statistics Office said if the public investment increased by 1% YoY, GDP growth rate would rise 0.058%. Second, the relaxation of social distancing measures would facilitate commuting and promote backlog projects.

Vietnam's 9M21 exports reached USD240,524 billion (18.8% YoY). The bright spot of the import-export picture is that Vietnam’s export turnover has surpassed import turnover since August, after months of deficit. Data from the General Department of Customs showed that most of the traditional exports to major trading partners recorded strong growth compared to the same period in 2020. The driving forces of Vietnam's export growth in 4Q include (1) The immunization program was speeded up, the demand for imported goods and services increased thanks to the reopening of major economies. (2) Effective free trade agreements (FTAs) such as CPTPP, EVFTA, UKFTA, RCEF will allow exporting companies of Vietnam to take advantage of reduced tariffs. (3) The price of Vietnam’s export commodities, especially major ones like iron and steel, Agro-forestry and fishery products, rice improved, leading to export growth. (4) The manufacturing sector revived thanks to eased social distancing restrictions after the pandemic was under control.

Although the fourth wave of pandemic made the short-term outlook for the business activities in Vietnam less optimistic, KB Securities believed it would be better in 4Q with social distancing measures eased or lifted thanks to better control of the pandemic.

FDI disbursement hit USD4,040 million (-21.4% QoQ, -20.9% YoY) in the third quarter alone, reflecting a big drop in the business confidence index (BCI), which was just 15.2 in August. This is the lowest level over the last 10 years. However, on the bright side, although 20% of European FDI enterprises temporarily transferred part of their production needs/orders to other countries, none have left Vietnam yet, according to European Business Association in Vietnam. 

Besides, the Ministry of Planning and Investment said newly registered FDI still expanded 20.6% YoY, showing the profound impact of COVID-19 on FDI inflows. Therefore, once the pandemic is under control, foreign investors’ trust and confidence will be reinforced because Vietnam remains an attractive destination, helped by favorable conditions coming from the effective FTAs, convenient geographical location, youthful population structure, support policies of the Government.

Domestic production and consumption plummeted during the previous social distancing periods (the first starting April 2020, the second starting July 2020, and the third starting February 2021), but rebounded strongly after that, reflecting the rehabilitation of Vietnam's economy. Therefore, KB Securities believed that the current scenario would be no different despite the slower recovery of the economy worsened by this prolonged and far-reaching lockdown.

After two months under Directive No. 16, the index of industrial production (IIP) decreased from 9.3% in June to -7.4% in August and 4.1% in September. The purchasing managers' index (PMI) declined from 44.6 points in June to 40.5 points in August and 40.2 points in September. The total retail sales also dropped from VND374.7 trillion to VND279.8 trillion in August and VND308.8 trillion in September. Notably, the IHS Markit survey revealed the fastest increase in backlogs ever due to the decrease in both production and staff numbers at record highs and chronic disruption of the supply chain. However, there have been some positive signals when the IIP and total retail sales recovered in September (Figure 22-23), domestic routes were gradually reopened, the Google mobility index inched up from the late September low.

KB Securities revised down its 2021F growth to 2.5% from 5.8% (in July 2021 report), reflecting the ongoing impact of the fourth wave of the Coronavirus where the Government had to impose stricter social distancing measures. Along with that, the GDP growth rate is projected at 5.7% in 4Q2021, the lowest level of the fourth quarter since 2013.