Quarterly gdp growth rate

Vietnam could pay a costly price if the government decides to end anti-virus measures prematurely to save a few percentage points of GDP growth, said an expert.

Maintaining a positive GDP growth rate should not be Vietnam’s priority at this moment, as the ultimate goal is to protect the well-being of key economic components, including the people, enterprises, the banking – finance system and public trust, said Vu Thanh Tu Anh, dean of Fulbright School of Public Policy Management, Fulbright University Vietnam.

Vu Thanh Tu Anh, director of the Fulbright Economics Teaching Program. Source: Fulbright.

All these factors would help lay the foundation for Vietnam to recover from the current crisis, Anh said at an online conference on April 6.

With a small-sized economy and a high level of economic openness, it is not a surprise that Vietnam is highly susceptible to external shocks.

Moreover, the lack of development of supporting industries forced the domestic manufacturing and processing to source input materials from abroad, Anh said, adding when the pandemic causes a disruption to global supply chains, the majority of manufacturers are struggling with shortage of materials.

Data: GSO. Chart: Nguyen Tung.

In addition to a 10-year low GDP growth of 3.82% in the first quarter, both industrial production and retail consumption suffered a plunge in growth.

Export growth recorded the all-time low of 0.5%, while import reverted to a contraction of nearly 2%, indicating companies are left with depleted input materials.

Anh predicted export growth in the second quarter may even lower when the world’s major economies, Vietnam’s key export markets, feel deeper impacts of the pandemic.

Data: National Economics University – Hanoi. Chart: Nguyen Tung.

“Without timely and effective intervention from the government, some economic sectors and enterprises may collapse, resulting in severe consequences for growth, jobs and social issues,” Anh warned.

During this context, Anh urged the government to mobilize all resources to prevent the  health crisis from turning into an economic crisis. In that case, an economic recession is inevitable, Anh added.

Vietnam could pay a costly price if the government decides to end anti-virus measures prematurely to save a few percentage points of GDP growth, Anh urged.

Public trust is key in every move

Anh recommended current supporting policies should take into consideration long-term benefits, which could ensure a speedy recovery and healthy development of the economy in the post-pandemic period.

In terms of fiscal policies, Anh said the government should prioritize public spending on healthcare and the fight against the pandemic, as failure in this aspect could no doubt lead to an economic shock.

Anh urged more government spending on social welfare and essential services to ensure social stability, particularly as the poor and near-poor are highly dependence on such support.

Meanwhile, it is essential to support liquidity for commercial banks, which in turn are providing support for enterprises hurt by the pandemic.

Anh noted Vietnam could be more flexible in managing the exchange rate policy in a move to maintain export advantages, like other countries have done.

While the government should allocate a part of state capital for developing a Covid-19 vaccine, instead of waiting for others, public investment policies should aim at a dual target of stimulating the economy and nurturing recovery capability.

Fields such as IT, renewable energy, major infrastructure development projects, e-payment, and e-commerce should be of government priorities.

Anh, however, said public trust is of utmost importance in every government’s moves and play a key part for the success of macro policies.

One of the top priorities of the government is to prove that the government has acted appropriately and timely for the benefits of the people and enterprises.

With that in mind, once this crisis ends, the government could expect greater effects in any future policies, Anh concluded.

Assuming there is no further massive outbreak domestically, it is expected the recovery to extend further in the fourth quarter.

Despite lowering Vietnam’s GDP forecast in 2020 from 3.5% to 2.8%, Singapore-based United Overseas Bank (UOB) has raised its prediction for the country’s economic growth in 2021 from 6.6% to 7.1%.

While the worst of the impact from Covid-19 pandemic looks to be over, it is, however, still a long way before Vietnam’s economy could return to its full capacity, stated UOB in its latest report, adding the rebound in both the manufacturing sector and domestic consumption remains weak so far and border closures have reduced tourist arrivals to a trickle.

After the slump caused by the pandemic in the first half of 2020, Vietnam’s economic growth picked up momentum in the third quarter with a gain of 2.62% year-on-year, compared to the revised 0.39% growth in the previous ones.

Assuming there is no further massive outbreak domestically, UOB expected the recovery to extend further in the fourth quarter but the pace is likely to be restrained against a backdrop of ongoing global Covid-19 pandemic. This resulted in UOB’s forecast for Vietnam’s fourth quarter GDP growth at 4% year-on-year.

For the first three quarters of 2020, headline GDP rose 2.12% year-on-year, with industrial sector contributing 1.12 percentage points, or more than half of the gain, while services sector rebuilt its momentum with a 0.55 percentage-point contribution.

As industrial sector (including construction) and services account for a large portion of Vietnam’s economy (about 35% and 37% share of GDP, respectively), their performances will influence headline growth significantly, stated the UOB.

Data releases so far showed an anemic recovery for these indicators. Industrial output expanded 3.8% year-on-year in September, despite after a deep decline in April, and is far below the double-digit pace in the past several years. Retail sales just managed to turn in a positive reading 0.7% year-on-year in September, after five consecutive months of declines.

According to UOB, one key driver for Vietnam’s services sector is inbound tourism, which accounts for the largest share relative to the country’s GDP among the ASEAN countries.

Vietnam reported visitor arrivals of less than 14,000 in September compared to nearly two million in January 2020. While this is not surprising given the border closures around the world to contain the spread of Covid-19, the impact on services sector is clearly felt and such a dismal state could continue for some time.

The Vietnamese government has recently reduced the country’s growth target to 2% in normal conditions and 2.5% if favorable factors emerge, while for 2021 it expects economic growth of 6 – 6.5%.

Against this backdrop of uncertainty in the outlook and potential downside risks for the domestic economy, especially after the disruption from the second wave of infections earlier, UOB expected the Vietnamese central bank to take on one more rate cut in the fourth quarter after multiple policy rates cuts previously.

Truong Van Phuoc, a respected economist, is optimistic about Vietnam’s growth, though some analysts warned about a negative growth rate after the new Covid-19 outbreak was discovered in Da Nang.

Bangkok (VNA) – The Bank of Thailand has slashed its economic growth forecast this year to 3 percent from 3.2 percent made in December, given the impact of the second wave of COVID-19 infections and tepid tourism.

Titanun Mallikamas, secretary of the central bank’s Monetary Policy Committee (MPC), said the second wave of infections that emerged in December resulted in a sharp drop in foreign tourist arrivals. The bank trimmed its projection for foreign arrivals this year to only 3 million from 5.5 million.

Last year, Thailand received 6.7 million foreign tourist arrivals and earned around 300 billion baht (9.66 billion USD) in tourism revenue. The figures are far below 40 million tourist arrivals and 2 trillion baht reported in 2019.

With tourism contributing up to 12 percent of GDP, Thailand’s economic recovery is on a slower pace than other countries that rely less on tourism, he said.

A significant decline in overseas travellers is expected to take a heavy toll on GDP in the first quarter this year, said Titanun.

In 2020, Thailand ’s economy shrank 6.1 percent, compared with growth of 2.3 percent in 2019. Last year’s 6.1 percent contraction was the worst full-year performance in 22 years since the 7.6 percent decline in 1998 as a result of the Asian financial crisis.

The Bank of Thailand forecasts the economy will take around 2.5 years to recover to the same level as before the pandemic.

Despite the downgrade on growth this year, the central bank predicted the Thai economy would expand by 4.7 percent in 2022, mainly supported by a fast recovery in merchandise exports, in line with the expansion of trading partner economies as well as stimulus measures recently announced.

Amid the global economic recovery, the Bank of Thailand upgraded its export growth outlook to 10 percent this year from 5.7 percent earlier. The improving economic momentum of trading partners is the key factor supporting export growth, Titanun said.

He said the MPC on March 24 voted unanimously to maintain the policy rate at 0.5 percent for a seventh straight meeting, aiming to support an economic recovery that remains highly uncertain./.

VNA

As uncertainties has led to HSBC revising down Vietnam’s GDP growth forecast in 2021 to 6.6%, the bank expected a strong rebound to 8.5% next year.

Despite a weaker-than-expected GDP growth in the first quarter at 4.48%, Vietnam still boasts one of the brightest growth prospects in Asia, according to HSBC.

Upswing in the tech cycle, consistent FDI inflows, and multiple Free Trade Agreements (FTAs) are seen as factors to keep up the country’s growth momentum, noted the bank in its latest report.

As uncertainties have led HSBC to revise down Vietnam’s GDP growth forecast in 2021 to 6.6%, but the bank expected a strong rebound to 8.5% next year, up two percentage points from its previous assessment of 6.5%.

For 2021, the report suggested Vietnam’s inflation would average around 3% in 2021, well below the State Bank of Vietnam’s (SBV) 4% ceiling. With inflation being less of a concern, the central bank has more flexibility to keep its monetary policy unchanged in 2021, it added.

Given Vietnam’s limited fiscal space, monetary policy did most of the heavy-lifting to support the economic recovery in 2020. The SBV cut its annual refinancing interest rate from 6% to 4%.

Taking into consideration positive GDP growth and benign inflation pressure, HSBC expected the SBV to keep its policy rate on hold until the second quarter of 2022, before possibly delivering a 25bp rate hike in the subsequent quarter. This would bring the refinancing rate to 4.25% by end-2022.

According to HSBC, while Vietnam’s fiscal space is constrained by its elevated public debt, some targeted and short-term assistance is still needed for struggling sectors and individuals to broaden out the recovery.

Production at Nippon Paint Vietnam in Quang Minh industrial park, Hanoi. Photo: Pham Hung

Indeed, the Ministry of Finance has proposed another extension of taxes and land rental payments with a total package worth VND115 trillion (1.7% of GDP). This includes a 5-month extension of the value-added tax (VAT) and a 3-month deferral of corporate income tax (CIT).

After a brief pause in 2020, the bank expected Vietnam to resume its fiscal consolidation efforts in 2021, while the fiscal deficit is predicted to shrink from 5.2% of GDP in 2020 to 4.7% in 2021, bringing down its public debt back to below 60% of GDP.

Future risks

Although Vietnam remains on a fast track to economic recovery, there are notable risks still looming, including a prolonged vaccination roll-out, which may delay the country’s tourism recovery.

At the domestic front, the weak labor market remains a headwind for reviving private consumption. While unemployment rates have dropped since the third quarter of 2020, a large part of Vietnam’s labor market remains in the informal sector, which may not be captured in formal employment statistics.

“Thus, supporting vulnerable businesses and workers remains a key task,” stated HSBC.

Meanwhile, Fitch Solutions in its new report argued that downside risks to Vietnam’s growth in 2021 “are now higher owing to the continued pressures being faced globally from the pandemic”.

Headwinds to both Vietnam’s services will remain as the outlook for a rapid resumption of international leisure travel remains bleak.

In addition, the strong momentum in manufacturing will also begin to face challenges arising from high shipping costs and competition for shipping capacity to the west between rest of Asia-West routes and China-West routes, asserted Fitch Solutions.