The World Bank has just released its fresh projection that the Vietnamese economy will rebound to 5.3 percent this year and thereafter to stabilise at around 6.5 percent in a scenario with eased mobility restrictions domestically and internationally – strongly resurging from 2.58 percent last year and 2.91 percent in 2020 - but under assumption that the pandemic will be under control both domestically and internationally.
“The Russia-Ukraine conflict has increased uncertainty about global economic recovery, created new strains on global supply chains and heightened inflationary pressures. This will affect Vietnam’s growth,” said World Bank East Asia and Pacific chief economist Aaditya Mattoo at the bank’s launch of April 2022 East Asia and Pacific Economic Update on April 5, 2022.
In the first quarter of 2022, Vietnam’s real GDP expanded by 5.03 percent year-on-year, marking a second straight quarter of growth.
According to the World Bank in Vietnam, the services sector is expected to gradually recover during the year as consumer confidence is restored and foreign tourism is expected to gradually resume from mid-2022 onward. However, manufacturing exports is expected to grow at a slower pace mirroring moderating growth in Vietnam’s main export markets such as the United States, the European Union, and China.
“Additional shocks could lead to a low case scenario where GDP grows 4 percent in 2022, recovering to 6 percent and 6.5 percent in 2023 and 2024, respectively,” the World Bank in Vietnam said.
The Asian Development Bank (ADB) on April 6, 2022 also released its Asian Development Outlook report, stating that Vietnam’s GDP growth is forecast at 6.5 percent in 2022 and 6.7 percent in 2023 - a rebound made possible by the country’s high COVID-19 vaccination coverage of nearly 208 million doses so far, the shift to a more flexible pandemic containment approach, expanding trade, and the government’s Economic Recovery and Development Programme (ERDP).
Meanwhile, Vietnam has also fully reopened its borders to foreign visitors as of March 15 and waived all quarantine requirements, after keeping its borders closed for most of the last two years. Before the pandemic, the tourism sector was a crucial growth driver, contributing 10.4 percent of GDP and employed 334 million people in 2019 according to the World Tourism Council. In that year, Vietnam also welcomed a record-high number of international visitor arrivals.
However, the ADB also warned that negative impacts from the Russia-Ukraine conflict and COVID-19, among many others, will affect Vietnam’s growth this year.
“Vietnam’s recovery is clouded by major near-term downside risks. High COVID-19 infections since mid-March could obstruct the economy’s return to normalcy this year. A slowing global recovery and a surge in global oil prices from the Russia-Ukraine conflict would directly affect Vietnam’s external trade and domestic oil prices, which would affect inflation,” the ADB report said.
The Ministry of Industry and Trade reported that last year, total export-import turnover between Vietnam and Russia hit 7.3 billion USD, including 4.5 billion USD earned by Vietnam’s exports, or only 1.33 percent of the Southeast Asian nation’s total export value of 336.31 billion USD. This mean Vietnam’s 1.7 billion USD in trade surplus.
In the first two months of 2022, Vietnam fetched a trade surplus of 109.1 million USD from Russia, including export turnover of 555.3 million USD or only 1.3 percent of the Southeast Asian economy’s total export turnover of 53.79 billion USD – up 10.2 percent year-on-year. Vietnam also earmarked 446.2 million USD for importing goods from Russia or only 0.8 percent of its total 2-month import turnover of 54.73 billion USD – up 15.9 percent year-on-year.
Meanwhile, the bilateral trade turnover between Vietnam and Ukraine last year stood at 720.5 million USD, a year-on-year increase of 51 percent. Vietnam’s main exports to Ukraine include computers and shoes, among others. In the first two months of this year, Vietnam’s export turnover from Ukraine sat at 57.5 million USD and import turnover of 8.4 million USD to this market, meaning a trade surplus of 49.1 million USD.
According to global data analyst and provider FocusEconomics, Vietnam’s GDP is projected to grow at the fastest rate in Southeast Asia this year.
“Looking ahead, industrial production is projected to accelerate significantly this year from 2021’s average level, as the pandemic abates and associated restrictions are eased. Moreover, the underlying strength of Vietnam’s industrial sector remains intact: Vietnam is an attractive low-cost base for manufacturing firms, including those looking to relocate from China due to the US-China trade tensions,” FocusEconomics said and expected GDP to expand 6.9 percent both in 2022 and 2023.
According to the Vietnamese General Statistics Office’s first-quarter survey on nearly 5,500 manufacturing and processing businesses nationwide, 28.4 percent of respondents said their first-quarter performance is better than in the fourth quarter of 2021. For the second quarter of 2022, 50 percent said their performance will be better than the first quarter – in which 84.7 percent of foreign enterprises said so, while these rates are 83.6 and 81.2 percent at state-owned enterprises and domestic private enterprises, respectively.
Headwinds
According to the World Bank, the outlook is subject to heightened risks to the downside. Slowing growth in major trading partners and terms-of-trade shock due to the Russia-Ukraine conflict and associated sanctions may affect recovery.
“This could be compounded by new COVID-19 variants. Economic recovery will also hinge on the recovery of the domestic private demand, which has been slow, highlighting consumers and investors uncertainty. The current surge in infections may lead to temporary labour supply and production disruptions,” said Jacques Morisset, World Bank lead economist and programme leader for Vietnam.
Fitch Solutions Macro Research last week also said it “expects Vietnam’s real GDP growth to accelerate to 6.8 percent in 2022” and the growth recovery will be underpinned by base effects and a continued easing of COVID-19 restrictions.
“Nevertheless, we note that headwinds to growth have risen following the outbreak of the Russian-Ukraine conflict, which have led us to revise down our growth forecast for Vietnam by 20 basis point,” Fitch Solutions Macro Research said in a report on Vietnam’s economic outlook. “We at Fitch Solutions have lowered our Vietnam’s 2022 real GDP growth forecast to 6.8 from 7.0 percent previously as economic headwinds have risen following the outbreak of the Russia-Ukraine conflict. Notwithstanding the downward revision, we still expect the Vietnamese economy to rebound strongly in 2022 from the growth print of 2.58 percent in 2021 and 2.91 percent in 2020.”
However, Fitch Solutions Macro Research also warned of Vietnam’s economy highly relying on exports and the growth slowdown in major trade partners like China, US, and the EU which will weigh on external demand.
“We have revised our 2022 US growth forecast from 3.5 to 3.1 percent, and our Eurozone forecast from 4.0 to 3.4 percent. Among the Asian economies, we believe that Vietnam is likely one of the most exposed to the slowdown in the US and EU, given that exports to the US and the four largest EU economies account for close to 40 percent of its GDP.”
In the first quarter of this year, Vietnam’s export turnover reached 25.2 billion USD from the US - up 13.2 percent on-year, and 11.1 billion USD from the EU – up 15.4 percent year-on-year, the Ministry of Industry and Trade reported.
HSBC has lowered its GDP growth forecast for Vietnam from 6.5 to 6.2 percent this year due to inflationary pressures amid rising global energy prices.
“Vietnam is facing multiple challenges given elevated global energy prices. It will increase its energy bills, deteriorating its terms of trade position,” HSBC said.
Improving credit
On March 31, Deputy Prime Minister Le Minh Khai signed a governmental decision approving the scheme on improving national credit ranking improvement until 2030. Under which, efforts are to be made to enable Vietnam in 2030 to achieve the credit ranking of Baa3 from Moody’s or at least BBB- from Standard & Poor’s and Fitch.
In 2030, the average annual economic growth rate is expected to be 7 percent, with per capita GDP of about 7,500, and total development capital hitting 33-35 percent of GDP. The country’s state budget overspending is aimed to be 3 percent of GDP, and public debt not exceeding 60 percent of GDP.
To this end, the government said one of the key solutions will be developing sturdy public finance with strengthened fiscal picture. Detailed measures will be enacted by relevant ministries and agencies.
According to the World Bank, since a strong economic rebound was underway at the start of the year, if the government deploys a strong fiscal policy support, the impact on economic growth could be mitigated. Monetary policy will need to remain accommodative, with continued vigilance to contain financial sector risks.
Francois Painchaud, resident representative of the International Monetary Fund in Vietnam, once said that as the economy moves from containment to recovery, the fiscal measures should gradually shift from broad-based liquidity support toward more productive investments, from temporary cash transfers to permanent expansion in social safety nets, all the while safeguarding hard-won fiscal sustainability. Stimulus should be time-bound, and an exit strategy clearly established to minimise fiscal risks.
“Structural reforms are key to unlock Vietnam’s growth potential while ensuring sustainable growth after the pandemic. Regaining medium-term growth momentum will require more decisive efforts to address economic scarring and kickstart productivity growth,” Painchaud said. “Reforms to improve business dynamism and efforts to increase investment in human capital and alleviate labour skill gaps/mismatches need to advance. Advancing the progress made in digital transformation to boost productivity and facilitate economic upgrading needs to be backed by strengthened human and capital infrastructure, and appropriate regulatory and legal frameworks, including concerning user privacy.”
