Economy showing signals of recovery

Prime Minister Nguyen Xuan Phuc has stated that the economy has been gradually witnessing activities return to normal, with enterprises’ confidence beginning to rise.

“The economy is now like a pressed spring which is ready to bounce up,” he said.

Latest figures from the Ministry of Planning and Investment (MPI) showed that in April, there were more than 3,800 businesses that resumed operation nationwide, up 11.3% month-on-month and 40.4% year-on-year. In the first four months, 17,800 enterprises did so, up 2.1% year-on-year, raising the total number of newly-established enterprises and those with resumed operations to 55,400.

Furthermore, 980 enterprises completed their dissolution procedures, down 25.5% month-on-month, and 17.6% year-on-year. Also, despite massive difficulties, about 11.700 operational businesses also raised investment capital by a total of VND681 trillion (US$29.6 billion).

“This is likely a positive signal that many enterprises are restarting their operations so as to welcome new business and investment opportunities after the pandemic is reined in,” said MPI Minister Nguyen Chi Dung. The Vietnamese economy’s mid-term outlook remains quite favourable due to high domestic consumption and export demands.”

According to the government, many enterprises have also been maintaining sustainable development with high growth.

“The World Bank has predicted that Vietnam will grow by 4.9% this year. In the first quarter, the economy grew 3.82% year-on-year. Though it was a 10-year first-quarter low, it remains a relatively high growth rate in the global common context,” PM Phuc said. “The World Bank’s assessment showed that Vietnam is still maintaining good fundamentals, with the highest growth rate in Southeast Asia and the wider Asian region. Among ASEAN+5 [namely Malaysia, Indonesia, the Philippines, Singapore and Thailand], Vietnam has the best growth outlook.”

Last week at the National Assembly Standing Committee’s meeting, Minister Dung reported that his ministry has formulated two economic growth scenarios for 2020.

In the first scenario, with Vietnam controlling COVID-19 in the second half of April and its key investment and trade partners doing this in the third quarter of 2020, GDP is expected to increase by 4.4-5.2% this year, with the agro-forestry-fishery sector growing 2.5-2.8%, the industrial and construction sector 6.7-7.9%, and the service sector 2.8-3.6%, year-on-year.

In the second scenario, with the country suppressing the epidemic in the second half of April and its major investment and trade partners doing this in the fourth quarter of this year, GDP is projected to climb 3.6-4.4% this year, with the agro-forestry-fishery sector increasing 2.1-2.5%, the industrial and construction sector 5.8-6.7%, and the service sector 1.8-2.8%, year-on-year.

The National Assembly Standing Committee has proposed that in spite of the economy showing signals of recovery, the government needs to consider formulating another growth scenario, with an assumption that the pandemic will surge in the country in this autumn and winter, while COVID-19 may not still be eradicated in 2020. In the event that this bad situation occurs, Vietnam’s economic growth may be as low as 3% this year, affecting the state budget balance and other issues in the economy.

A few weeks ago, it was forecast that the Vietnamese economy would rebound strongly next year thanks to a surge in domestic production after the COVID-19 pandemic.

The World Bank stated that over the medium term, growth is projected to rebound back to 7.5% in 2021 and converge at around 6.5% in 2022, “reflecting an improved external demand and a firming of the services sector, as well as a gradual recovery in agricultural production. The economy will also rebound from the global coronavirus pandemic.”

Meanwhile, the Asia Development Bank (ADB) has predicted that Vietnam’s economic growth will slow sharply to 4.8% in 2020, but if the outbreak is contained within the first half of 2020, the rate will rebound to 6.8% next year and remain strong over the medium and long term. “The Vietnamese government is implementing huge packages to support local production and exports. If these measures are well deployed, they will help the economy bounce back quickly in the second half of 2020 and until 2021,” an ADB expert told VIR.

“Despite the potentially large impact of COVID-19, Vietnam’s economic fundamentals remain resilient. The drivers of economic growth - a growing middle-income class and a dynamic private sector, specifically household businesses and domestically held enterprises - remain robust,” he said.

Meanwhile, the International Monetary Fund has also forecast Vietnam will achieve the fastest growth of 2.7% this year in ASEAN, before bouncing back to 7% in 2021.

Last week, global business information analyst and provider TradingEconomics projected that Vietnam’s GDP will grow 6.5% both this year and next year.

“GDP in Vietnam is expected to reach US$265 billion by the end of 2020, according to Trading Economics global macro models and analysts’ expectations. In the long-term, the Vietnam GDP is projected to trend around US$289 billion in 2021 and US$325 billion in 2022,” TradingEconomics said in a statement.

Standard Chartered Bank has also forecast Vietnam’s economic growth at 3.3% in 2020 due to increase in external headwinds.

“Vietnam is now more integrated with the global economy via its booming manufacturing sector; its trade-to-GDP ratio has risen to 300%, among the highest in Asia, signifying its high dependence on global demand,” said Chidu Narayanan, economist for Asia of Standard Chartered Bank. “Lower global demand amid likely recessions in the US, the euro area and other G10 economies will weigh on 2020 growth. We see growth rebounding to 6.5% in 2021 given an expected demand recovery and the low base from 2020.”

According to the ADB, one of the key drivers for Vietnam to grow strongly next year is that the country’s middle class is one of the fastest growing in Southeast Asia. According to Boston Consulting Group, the middle class has doubled in size since 2014 to 33 million, or about a third of the population.

“The business environment similarly continues to improve. The disbursement of public investment has improved significantly, with growth in January–February 2020 at nearly 18% over the same period in 2019,” stated a fresh ADB report on Vietnam. “Disbursement will continue to improve in 2020 as this is a priority fiscal measure in response to COVID-19.”

Moreover, the large number of bilateral and multilateral trade agreements in which Vietnam participates promise the improved market access essential for an economic rebound after COVID-19. Containment of COVID–19 in China and that market’s likely return to normal will help to revive global value chains and facilitate economic recovery in Vietnam, the report stated.