What is Vietnam’s GDP growth scenario in 2021

Source: VNA

Several economies showed signs of recovery in the first quarter of 2021. However, emerging virus variants and staggered vaccination rollouts due to vaccine supply shortage have posed new threats that led to uneven recovery across countries.

China's GDP expanded 7.9% in Q2 2021 from a year earlier, missing expectations for a rise of 8.1% in a Reuters poll of economists. This expansion slowed significantly from 18.3% record growth in Q1 2021. There remained uncertainties for manufacturing and services in China in Q2 2021 due to elevated inflation.

The U.S. economy rebounded robustly due to effective vaccination campaigns and bailouts programs. With views on transitory inflation, FED continued to keep interest rates at 0- 0.25% and purchase Treasury bonds and mortgage-backed securities worth 120 billion per month.

While Europe continued its economic contraction in Q1/2021 due to the resurgence of the COVID-19 pandemic. However, the outlook for economic recovery in Europe brightened in Q2 due to a boost in the vaccination progress, leading to a sharp drop in the number of new cases and hospital admissions, which allowed many European countries to reopen.

In Q2 2021, Viet Nam's GDP growth reached 5.64% (yoy). The agro-forestry-fishery, service and industrial sectors recorded positive growth in H1. The FDI sector played a key role in economic growth through exports.

Besides the impact of the COVID-19 epidemic, businesses in Vietnam have to bear additional production costs due to the increase in raw material prices and land rents. CPI inflation in Q2/2021 increased to 2.67% (yoy) and 1.47% (yoy) in H1 2021– the lowest levels since 2016. However, Vietnam Institute For Economic and Policy Research (VEPR) forecasted, Vietnam’s CPI inflation might increase in the near future due to the rise of food prices and education-related fees and energy prices fluctuations. Trade balance deficit will continue to occur due to the need to import materials to restore the production process. Interbank interest rates suddenly increased again after February…

With complications on the Covid-19 epidemic, VEPR lowered Vietnam economic growth forecast in 2021 comparing to previous reports. Vietnam’s GDP growth in 2021 is forecasted at 4.5% - 5.1%, 1.2-1.5 percent points lower than previous forecasts. Accordingly, VEPR presented three GDP growth scenarios for Vietnam this year: 

Basic scenario: the COVID-19 outbreak will be controlled at the end of Q3 2021, the vaccination is operated quickly and herd immunity is reached in Q2 2022, the macroeconomic background is stable. Therefore, Vietnam's economic growth is forecasted at 4.5-5.1%. 

Favorable scenario: the COVID-19 outbreak will be controlled in August 2021, the vaccination is fast and herd immunity is reached in Q1 2022, the macroeconomic background is stable. Therefore, Vietnam's economic growth is forecasted at 5.4 – 6.1%. 

Negative scenario: the COVID-19 outbreak will not be controlled and economic operations are not back to normal until Q4 2021, the vaccination is slow because of supply shortage; policies to support the people, companies, restructuring, and digitalization progress will be pushed up, but service, trade, and FDI attraction could recover slowly. Then, Vietnam's economic growth in 2021 can only reach 3.5-4.0%.

In VEPR's view, there are four things that Vietnam needs to prioritize right now, namely: controlling the COVID-19 epidemic with an overall and consistent strategy; Promptly disbursing bailouts packages for unemployed workers; Promoting disbursement of national-sized infrastructure investment projects, and monetary stimulus for the economy but controlled at an appropriate level (10%) with moderate risk control measures.

Some international organizations also revised down Vietnam's GDP growth forecast for 2021. In particular, Standard Chartered Bank recently downgraded Vietnam's GDP growth forecast for 2021 from 6.7% to 6.5%. While the Asian Development Bank (ADB) lowered its forecast of Vietnam GDP growth sharply to 5.8% from 6.7% in April…