Social distancing measures have led to a decreasing number of jobs and caused GDP growth to fall to a historic low of nearly 0.4 percent in the second quarter, it said in its first macroeconomic report on Vietnam.

But the economy is set to enter a recovery phase in the third quarter thanks to public investment, retail and exports, it said.

This would result in growth of 2.7 percent this year, higher than the 1.8 percent forecast recently by the Asian Development Bank. Both forecast inflation to be under 4 percent.

Growth is expected to jump to 8.1 percent next year, the highest rate since 1997, driven mainly by exports thanks to the country’s cheap labor, the report said.

Labor costs in the country’s biggest cities, Hanoi and Ho Chi Minh City, are as low as $190 per month, compared to $360 in Shanghai, China, and this should attract an increasing number of garment, footwear and handbag makers leaving China.

Its numerous free trade agreements are set to help Vietnam from the rising global protectionism.

Exports of tech products such as smartphones, consumer electronics and computers have exceeded that of traditional items such as garment and textile since 2015 and the gap is expected to widen further.

In the first eight months of this year exports of the former grew by 6.3 percent year-on-year and accounted for 70 percent of total export gains.

However, whether exports could boost economic growth next year depends on the Covid-19 situation globally and the arrival of a vaccine, the bank said.