Positive factors in place for economic growth in 2021

While COVID-19 has been a blow, the Vietnamese economy is looking at great prospects in the coming years. Photo: Le Toan

Minister of Planning and Investment Nguyen Chi Dung has reported to the government a fresh scenario for economic growth for the first half of 2021, based on positive performance of the economy in the first five months in defiance of difficulties caused by the health crisis.

The Ministry of Planning and Investment (MPI) forecast that the economy will likely grow 5.8 per cent on-year in the first six months, or 1.31 per cent lower than the target of 7.11 per cent set in the government’s Resolution No.01/NQ-CP released on January 1 on key tasks for implementation of the socioeconomic development plan and state budget estimates for 2021.

However, the expected 5.8 per cent rate, if realised, will also be far higher than in the same period last year, when GDP grew 1.81 per cent on-year, also the lowest six-month rise of each year in the 2011-2020 period.

“The momentum for economic growth in 2021 will come from the industrial-construction sector and the service sector, especially the processing and manufacturing industry, a rise in investment and expansion of trade activities,” said Minister Dung.

The MPI forecast that in the first six months, while agricultural production will climb 3 per cent on-year, industrial production will ascend 7.8 per cent on-year. Total retail and consumption service revenue is forecast to rise 7.1 per cent on-year, and the service sector will likely expand 5 per cent on-year.

“The number of newly-established enterprises is expected to increase at a low level, at only 1.6 per cent on-year, but the volume of newly-registered capital will soar by 34.8 per cent as compared to the same period last year,” Minister Dung said.

Affected production

Difficulties caused by the health crisis still lingered in the first five months of 2021, forcing the MPI to propose a reduction in the target of economic growth for the first half of the year, despite the fact that domestic production is bouncing back.

The 1.31 per cent reduction in economic growth will mean a loss of about 400,000 direct jobs. So far this year, key input products for the economy saw a big reduction in production.

For example, state-owned PetroVietnam reported that in 2021 so far, its production has reduced on-year. Exploitation of crude oil hit 4.54 million tonnes, down 9 per cent – in which exploitation of domestic oil reached 3.78 million, down 9 per cent, and exploitation of overseas oil raked in 760,000 tonnes, also down 9 per cent; exploitation of natural gas hit 3.47 billion cubic metres, down 13 per cent; production of nitrate 627,900 tonnes, reducing 17 per cent; and assorted petrol 2.77 million tonnes, down 14 per cent.

PetroVietnam’s export turnover in the first five months was $781.9 million, down 2 per cent on-year. In which, export of crude oil was 3.77 million tonnes, down 2 per cent.

In another case, state-owned Vietnam National Coal and Mineral Industries Group (Vinacomin) also reported that in the first five months of 2021, its total revenue is estimated to be $2.16 billion, down 9 per cent on-year. In which revenue from coal sales hit over $1.26 billion, down 11 per cent; revenue from electricity production and sale was $247.4 million, down 8 per cent; and revenue from other business sectors sat at $248.7 million, a 15 per cent reduction. Moreover, Vinacomin’s coal production also declined on-year, including rough coal (16.9 million tonnes, down 6 per cent), and consumed coal (17.74 million tonnes, down 11 per cent).

However, electricity, one of the vital inputs for the economy, saw an on-year increase.

According to state-run Electricity of Vietnam (EVN), its total industrial gross output in the year so far hit over $6.39 billion, up 8.06 per cent on-year. Produced and purchased electricity is estimated to be nearly 100 billion kilowatt hours, up 7.1 per cent on-year.

EVN’s commercialised electricity in the five months is estimated to be 90.14 billion kWh, an 8.06 per cent on-year increase. In which, electricity for agro-forestry-fishery activities accounts for 3.9 per cent, electricity for industrial and construction activities holds 55.91 per cent, and electricity for households occupies 31,5 per cent. The rate for hotels is 4.5 per cent.

EVN’s revenue from electricity sales for January to the end of April is estimated to stand at $7.24 billion, up 11.06 per cent on-year.

According to the General Statistics Office (GSO), the economy’s production and distribution of electricity to the end of May expanded 8.3 per cent as compared to that of only 2.1 per cent per cent on-year in the corresponding period of 2021.

“COVID-19 has seriously hurt domestic production. However, production is strongly recovering and we need to boost this recovery,” said Prime Minister Pham Minh Chinh at a government cabinet meeting held a fortnight ago.

Optimistic forecasts

According to the latest Economic Outlook report from Oxford Economics, commissioned by chartered accountancy body Institute of Chartered Accountants in England and Wales and released last week, despite the recent resurgence of COVID-19 cases, Vietnam’s growth outlook remains optimistic and the economy is expected to return to pre-pandemic levels by the second quarter of 2021, with GDP forecast to grow at 7.6 per cent in 2021, one of the highest in the region where GDP will rebound strongly to 4.8 per cent in 2021, after contracting 4.1 per cent in 2020.

“Singapore and Vietnam are expected to continue leading the region in recovery. Despite a resurgence of COVID-19 cases in Vietnam, which has affected its manufacturing sector and export industries, its economy is predicted to rebound swiftly once restrictions are lifted,” the report said.

Standard Chartered Bank has also freshly projected that Vietnam’s GDP will grow 6.7 and 7.3 per cent in 2021 and 2022, respectively.

“Vietnam’s economic fundamentals remain robust. The country has been one of the world’s best-performing economies during the pandemic. That said, we are closely watching the domestic COVID-19 situation,” said Tim Leelahaphan, economist for Thailand and Vietnam at Standard Chartered, in the bank’s recent Global Research report on Vietnam’s performance.

Vietnam began vaccinations on March 8, with about one million of the population of 96 million having been administered one shot. Wider vaccination rollout is a precondition for a tourism rebound and a sustainable economic recovery, according to Standard Chartered.

The bank’s economists pointed out that trade data has maintained the positive momentum.

In the first five months of 2021, Vietnam’s total export-import turnover is estimated to have reached $262.2 billion, including $130.9 billion from exports – up 30.7 per cent on-year, and $131.3 billion from imports - up 36.4 per cent on-year.

Also according to the GSO, up to the end of May about 55,800 enterprises were newly established, with total registered capital of $33.84 billion and employing 412,400 new labourers, up 15.4 per cent in the number of enterprises and 39.5 per cent in registered capital. Furthermore, 22,600 businesses also resumed their operations, up 3.9 per cent on-year.

According to an AHK World Business Outlook Survey released in mid-May, 47 per cent of German businesses in Vietnam intend to expand their activities in the country – up from 22.7 per cent in spring last year, and 50 per cent assume an increase in employment in 2021/2022 – up from 27.3 per cent in spring of 2020. About 65.8 and 73.7 per cent expected the country’s economic and business situation to get better this year.

However, MPI Minister Dung took great caution when talking about the economic outlook for the second half of the year.

“The pandemic remains quite complicated, so there will be risks for the economy’s outlook in the latter half of the year when businesses’ activities will remain difficult, though their performance is significantly improving,” he added. “Thus, the successful containment of COVID-19 will be a very important driver for the economic recovery and outlook in the second half of the year.”