The Asian Development Bank and some other global organizations have adjusted their forecasts for Vietnam’s GDP growth rate in 2020.
Forecasts by ADB and HSBC
In its latest update on the region’s economic outlook, the Asian Development Bank (ADB) said that thanks to the global recovery which has boosted exports, Vietnam's GDP growth accelerated to 5.6% in the first half of the year compared to 1.8% in the same period of 2020.
However, the relatively slow implementation of vaccination, and the application of prolonged distancing measures in the most developing regions the country have had a major impact on trade flows and restricted economic activities.
Accordingly, the 2021 growth forecast of Vietnam has been revised down to 5.8% from 6.7% announced in April. However, the growth outlook for 2022 remains unchanged at 7%. Expected inflation for this year has also been revised down, from 3.8% to 3%.
Previously, many organizations had also lowered their GDP growth forecasts for Vietnam when the economy was significantly affected by the latest Covid-19 outbreak.
HSBC revised down its forecast by 0.5%, from 6.6% to only 6.1% with inflation forecast at 2.8%. The recent rapid increase in the number of infections is expected to slow down the economy until at least the third quarter.
The Central Institute for Economic Management offers two scenarios, whereby economic growth can reach 6.2% if the epidemic is controlled early in August, or reach 5.9% in the less optimistic case.
Not only in Vietnam, new Covid-19 outbreaks in Asia have slowed the recovery in some economies. Accordingly, ADB forecasts a growth of 7.2% for this region, slightly down from 7.3% in April. The outlook for 2022 has been raised from 5.3% to 5.4%.
ADB Chief Economist Yasuyuki Sawada said Asia and the Pacific's post-Covid-19 recovery is continuing, although the path remains precarious amid new outbreaks, new variants and uneven vaccine deployment.
In addition to containment and vaccination measures, a strategic and phased resumption of economic activity will be key to ensuring a green, inclusive and sustainable recovery.
Challenges caused by the most recent outbreak
Vietnam's GDP in the second quarter of 2021 increased sharply to 6.6% over the same period last year, but this result is largely due to the very low growth in the same period in 2020.
In fact, economic indicators have indicated the challenges Vietnam faces in the context of the most severe outbreak ever.
Specifically, services is the most negatively affected sector, whose contribution to economic growth fell from 45% before the pandemic to about 20% in the period March - June 2021.
Meanwhile, Vietnam's domestic demand has decreased. Although the retail industry still grew positively at 3.4% in the second quarter of 2021 compared to the same period last year, this result was thanks to the low base price in the same period last year.
In fact, figures for May and June show a two-month straight decline in retail growth year-over-year, showing that the impact of this outbreak is much more severe than the previous two ones.
In addition, this outbreak exacerbates the weakness of Vietnam’s labor market. The unemployment rate increased from 2.4% in the first quarter of 2021 to 2.6% in the second quarter of 2021, with the total number of jobs falling by 65,000 compared to the previous quarter.
Unlike developed countries that have applied direct cash subsidies to its citizens, developing countries like Vietnam have to wait a long time to see a marked increase in domestic consumption when the job market fully and sustainably recovers.
Along with that, the forecast index still shows the short-term risk of supply chain disruption. PMI in June plunged to a 1-year low with all key indexes dropping sharply.