After the fourth wave of COVID-19 emerged, some organizations lowered their growth forecasts for Vietnam. Before the ongoing COVID-19 outbreak, Oxford Economics, IMF, World Bank and HSBC forecast Vietnam's economy to grow by 6.6-6.8% this year. At present, their forecasts have been revised down.

Lower than expected GDP growth

According to the World Economic Outlook Report released by the World Bank (WB) on June 8, all major moving indicators fell sharply in May 2021 as restriction measures were adopted to contain this outbreak. The WB noted that although the economy appeared to have performed relatively well before the fourth outbreak, there are some signs that economic activity will slow down if the pandemic cannot be brought under control in the short term.

Most mobility indicators, especially in large urban centers, fell sharply and some pressures were exerted on value chains of strategic sectors (electronics and construction). Vietnam's external economic position might also be slightly reduced on decreased merchandise exports and FDI flow commitments. These developments should be closely watched in the coming weeks.

“Positively, the government has widened fiscal room and it can be considered to shift to a more accommodative fiscal policy by supporting households and businesses affected by the pandemic as well as speeding up public investment projects to boost domestic demand," said the WB.

Accordingly, the WB believed that Vietnam's GDP growth was expected to reach 6.6% in 2021, slightly lower than the forecast of 6.8% at the end of 2020 due to the ongoing reemergence of the COVID-19 pandemic. However, this is still the highest growth forecast for ASEAN countries by the World Bank.

Last October, S&P expected Vietnam's GDP growth of 11.2%. At the latest forecast on May 21, when a new wave of COVID-19 appeared in Vietnam, the agency revised Vietnam's GDP growth to 8.5% in 2021. As of May 31, the bank said it had made another revision to Vietnam’s GDP growth prospect to 6.7% from 7.8% earlier. 

The common point of the latest growth forecasts is COVID-19 is still considered a strong "variable" on Vietnam’s growth this year.

Standard Chartered said, “Fast economic growth can give rise to inflation and rising food prices in the world are also affecting domestic inflation. Vietnam's average inflation is forecast at 3.8% in 2021. The latest wave of the COVID-19 pandemic is attacking Southeast Asia and Vietnam cannot avoid it. New infections are increasing rapidly every day, especially in industrial zones, disrupting manufacturing activity. While May's figures of Vietnam remained steady, this outbreak could jeopardize the 2021 growth target of 6.5%. 

However, in the first five months of 2021, the merchandise export and import value reached all-time highs after expanding by 29.1% and 35.4% year on year respectively. This remarkable result reflected solid growth in exports of computers, electronics and machinery.

H2 GDP growth of 6-7% is a must

In the report on the socio-economic performance in May and the first five months of the year, the Ministry of Planning and Investment expected the gross domestic product (GDP) to reach nearly VND4,000 trillion (US$170 billion), 5.8% higher than a year ago and 0.42 percentage points lower than the target stated in the Government's Resolution 01/NQ-CP (up 6.22%) and 0.12 percentage points lower than the Government's updated target in the first quarter of 2021 (up 5.92%).

State budget revenue in six months was forecast to fulfill 55.5% of the full-year estimate, up 10.9% year on year and roughly equal to that in 2019. State budget expenditure was projected to reach 43% of the estimation. Public investment disbursement in the first six months of the year was projected to achieve 34.15% of the plan (versus 34.85% a year ago).

According to the Ministry of Planning and Investment, the number of newly registered enterprises was forecast to extend the slowing trend (about 1.6%) but the value soared as much as 34.8%. Corporate bankruptcy remained high.

According to the ministry, to achieve the growth target for the whole year of 2021, the GDP must be expanded by 6-7% in the last six months of the year and this great effort has to be made in the context of the complicated development of the COVID-19 pandemic. 

“The driver of economic growth in 2021 is determined by industry, construction and service, especially manufacturing and processing, increased investment and expanded trade,” the Ministry of Planning and Investment emphasized.

At the same time, Vietnam will necessarily support digital transformation for Vietnamese businesses in all fields, build practical, effective, and focus on the digital economy and digital society. And, public investment disbursement needs to be accelerated.

"In particular, ministries and sectors need to promptly implement support solutions for people and businesses affected by the COVID-19 pandemic,” the Minister of Planning and Investment emphasized.

Domestic economic experts believed that GDP growth may reach 6.5-7% in the last six months of this year. According to a report released recently by Viet Dragon Securities Joint Stock Company (VDSC), Vietnam’s GDP growth was estimated at 7.2% in the second quarter and 6.5% in the year.

Manufacturing will continue to lead growth momentum. The rise in world credit demand will be an opportunity for Vietnam's exports. Agricultural GDP growth was forecast to rise by over 3% in the second half of the year. “Optimistically, about 86% of industrial and manufacturing enterprises have contracts for stable or better performance while only 14% anticipated a weakening outlook on lack of contracts and customers,” said Dr. Dinh Trong Thinh, Deputy Director of the Institute of Economics and Finance (the Academy of Finance).