What is the scenario for 2021F Vietnam’s GDP growth?

Ho Chi Minh City set a target to open totally since mid-January next year. 

The fourth wave of COVID-19 has greatly impacted all aspects of Vietnam’s economy in the last four months. The economic picture even deteriorated rapidly in August as the country must adopt tighter social distancing protocols to prevent the spread of coronavirus. Despite applying stronger social distancing measures than before, the fourth wave of COVID-19 infections is unlikely to be completely controlled within the next 1-2 months as VNDirect previously forecasted. 

To minimize the impact on the economy, the government planned to gradually reopen nonessential economic activities since mid-September. However, VNDirect does not expect the economy’s reopening to be rapid due to a high number of daily new cases, low vaccination rates, and the negative impact of supply chain disruptions. “We think this low recovery could extend into 4Q21F until the daily new cases reducing significantly from the current level and the vaccination rate picking up higher. Therefore, we have revised our forecasts for Vietnam's economic outlook in 2H21F”, this stock company said.

In the baseline scenario, VNDirect revised down Vietnam’s 2021F GDP growth to 3.9% from a previous forecast of 5.0-5.5%. Its forecast is based on the following key assumptions:

First, the curve of the daily cases will flatten in mid-September. 

Second, Vietnam could accelerate vaccine deployment until the end of 2021. In VNDirect ‘s baseline scenario, Hanoi and Ho Chi Minh city will complete the first dose of COVID-19 vaccine for people over 18 years of age in September 2021 and about 60% of Vietnam's population will get at least one dose of COVID-19 vaccine by the end of 2021. 

Third, Hanoi could ease social-distancing measures since late September 2021 and Ho Chi Minh city would start relaxing social restriction protocols since early October 2021. Ho Chi Minh City set a target to open totally since mid-January next year. 

Fourth, domestic flights are expected to resume since late September. 

Fifth, Vietnam could pilot reopening some tourist areas, such as Phu Quoc island, for international tourists since the fourth quarter of 2021.

In its new forecast, VNDirect expected the service sector to slide 0.02% YoY in 2H21F, lower than an increase of 2.4-3.2% YoY in the previous forecast and the 4.0% growth rate seen in 1H21. Some service sub-sectors, including accommodation and food service activities; transportation and storage; arts, entertainment, and recreation; administrative and support service activities, may record negative growth in 2H21F.

This stock company lowered the growth rate of the industry and construction sector to 5.1% YoY in 2H21 from the previous forecast of 7.3-8.3% YoY and the 8.4% growth rate seen in 1H21 due to stricter social restriction protocols and supply chain disruption. For the agricultural, forestry, and fishery sector, it expected this sector to grow by 3.6% YoY in 2H21, lower than the previous forecast of 3.7-4.0% YoY and the 3.8% growth rate seen in 1H21 due to lower domestic consumption demand. Regarding quarterly growth, it forecasted 3Q21F GDP growth at -1.2% YoY before rebounding to 5.7% in 4Q21F.