Despite lower-than-expected economic growth for the first six months of 2021, the government has decided not to adjust its growth target for the entire year, while pinning high hopes on an global economic recovery given the domestic economy remaining quite open to international trade, and also on its pro-business policies inspiring the business community.

The Vietnamese economy has bounced back visibly from 4.48% in the first three months of the year to 6.61% in the second quarter. The economy grew 5.64% as compared to merely 1.81% in the corresponding period last year.

Last November, the National Assembly (NA) set a target of 6% of economic growth for the whole year, while the government did the same in January 1.

Prime Minister Pham Minh Chinh has ordered that all localities must devise their own economic growth scenarios for the last half of the year, based on the freshly-announced scenarios of the Ministry of Planning and Investment (MPI).

The MPI last week reported to government its two economic growth scenarios for the last six months of the year. In the first scenario, so as to reach the growth goal of 6% for this year, the economy needs to grow 6.2% in the third quarter, and 6.5% in the fourth quarter.

In the second scenario, in order to climb by 6.5% in 2021, the economy needs to ascend 7% in the third quarter, and 7.5% in the fourth quarter.

This would mean that there is no plan to adjust the economic growth rate for the entire year, despite the numerous difficulties ahead, with the speed of vaccination remaining slow.

"All efforts must be made to accomplish the goals set by the NA and the government. The government is directing all ministries, agencies, and localities to drastically implement measures and tasks carved out in the resolutions of the Party, the NA, and the government," said a government report on Vietnam's economy recently sent to the NA's Standing Committee.

Remaining in difficulty

The MPI reported that in the first six months of this year 2021, the agro-forestry-fishery sector increased 4.11% year-on-year, remaining a bright spot on the economic growth picture.

Meanwhile, the industrial and construction sector ascended 10.28% year-on-year, and the service sector rose 4.3%.

"In addition, business activities are expected to continue facing difficulties. They need further support from the state," said MPI Minister Nguyen Chi Dung. "The trend of businesses that have withdrawn from the market will likely stay at a relatively high level."

In a specific case, state-owned Vietnam National Coal and Mineral Industries Group (Vinacomin) reported that in the first half of this year, its total revenue is estimated to have been VND64.61 trillion (US$2.8 billion), down 2% year-on-year.

Of which, revenue from coal was VND37 trillion (US$1.6 billion), down 9%, while production and consumption of natural minerals totalled about VND7.99 trillion (US$347.4 million) - up 38%; production and sale of electricity hit VND7 trillion (US$304.3 million) - down 5%; and consumption of coal hit 22.53 million tonnes, down 5% year-on-year.

The General Statistics Office (GSO) announced that in the first six months of 2021, 70,200 enterprises nationwide halted operations and are awaiting disbandment, up 24.9% as compared to the same period last year. On average, each month witnessed about 11,700 businesses leaving the market.

"However, the momentum for economic growth in 2021 will continue coming from the industrial-construction and the service sector, especially from processing and manufacturing industries, an increase in investment and expansion of trade activities through effectively taking advantage of free trade agreements that Vietnam have signed with foreign partners," Minister Dung said.

Expectations

The government hopes its policies in favour of enterprise will help businesses strengthen their confidence and performance.

"In the context of COVID-19 becoming increasingly complicated, Vietnam is the only economy in the globe that have been raised to a 'positive' rating in terms of its economic outlook by the three global rating firms of Moody's, S&P and Fitch," Minister Dung said.

The World Bank Group recently ago enacted its Global Economic Prospects report for June 2021, forecasting that Vietnam's economy will grow at 6.6% in 2021 and 6.5% next year, relatively high given the pandemic is now raging in the economy.

"Vietnam has been successful in containing COVID-19 and has benefitted from fiscal measures supporting public investment and robust foreign direct investment (FDI) inflows," the report read. "Among the smaller ASEAN countries, only Vietnam has seen output surpassing pre-pandemic levels. Mobility around retail areas remains subdued, reflecting the continued spread of the virus amid the slow progress of vaccination. Consumer spending has therefore been lagging, but industrial output has mostly recovered, helped by a quick rebound in regional goods exports."

At present, Vietnam's economic growth relies on the recovery of the global economy as its GDP value is equal to 63% of its total export-import turnover. Thus, a positive impact from new demand-stimulus bailouts in big economies in the world who are Vietnam's trade partners is hoped to push up demand for Vietnam's goods.

Additional fiscal solutions announced in some nations in the past few months will add to the overall support this year, including in the US, Japan, Germany, Canada, and India. Many nations have also extended their current income support schemes, or are planning for their reintroduction, as in Brazil.

In Europe, spending of €2.018 trillion (US$2.45 trillion) from the Next Generation recovery fund is due to begin later in 2021, but the total discretionary fiscal stimulus this year appears likely to be relatively mild, at around 1% of GDP in the euro area, despite considerable capacity.

The extent of fiscal support in the US for 2021 is set to be remarkably bigger than in many other nations. The Consolidated Appropriations Act passed in December 2020 contained temporary solutions valued at US$900 billion or 4% of the US' GDP. It is largely centred on emergency assistance for households and the unemployed.

In March, US President Joe Biden signed the US$1.9 trillion American Rescue Plan Act into law, sending much-needed aid to millions of Americans still struggling due to the COVID-19 pandemic.

The American Rescue Plan provided US$1,400 direct payments to individuals making up to US$75,000 annually, US$350 billion in aid to state and local governments and $14 billion for vaccine distribution. The bill also provides US$130 billion to elementary, middle and high schools to assist with their safe reopening.

The government last week enacted a resolution on enacting 12 policies worth over VND26 trillion (US$1.13 billion) to support employees and employees vulnerable to the COVID-19 pandemic. This is the second support package after the first, valued at VND62 trillion (US$2.69 billion), was released in April 2020. It is expected tens of millions of people will benefit from the second package.

Deputy Prime Minister Le Minh Khai last week inked and enacted the government's hallmark Resolution No.63/NQ-CP on the key tasks and solutions for boosting economic growth, public investment disbursement, and sustainable exports in the remaining months of 2021 and in early 2022.

"Economic growth in the first months of this year has failed to reach the set target, with slow disbursement of public investment, while the trade balance is tending to shift to a deficit, with rising pressure in terms of inflation. Production and business activities in many sectors have been seriously affected, with the life of many people facing difficulty, especially in pandemic-hit areas and amongst labourers in industrial zones affected by the pandemic," read the resolution.

The resolution hopes for bigger efforts to accomplish all goals set by the NA and the government, pushing back COVID-19, and completing vaccination as soon as possible.