VNDIRECT predicts Vietnam's GDP growth of 3.9 per cent in 2021

The fourth wave of COVID-19 has greatly impacted all aspects of the Vietnamese economy in the last four months. The economic picture even deteriorated rapidly in August as the country must adopt tighter social distancing protocols to prevent the spread of the coronavirus.

Despite applying stronger social distancing measures than before, the fourth wave of COVID-19 infections is unlikely to be completely controlled within the next 1-2 months as we previously forecast. To minimise the impact on the economy, the government planned to gradually reopen non-essential economic activities since mid-September.

However, VNDIRECT does not expect the economy’s reopening to be rapid due to a high number of new cases each day, low vaccination rate, and the negative impact of supply chain disruptions.

"We think this low recovery could extend into Q4 of this year, until the daily new cases reduce significantly from the current level and the vaccination rate picks up. Therefore, we have revised our forecasts for Vietnam's economic outlook in the second half of 2021. In the baseline scenario, we revised down Vietnam’s 2021 GDP growth to 3.9 per cent from a previous forecast of 5.0-5.5 per cent," the brokerage said.

The forecast is based on the following key assumptions:

The daily cases curve will flatten since mid-September and Vietnam could accelerate vaccine deployment until the end of 2021. In its baseline scenario, Hanoi and Ho Chi Minh City will complete administering the first doses of COVID-19 vaccine to people over 18 years of age in September 2021 and about 60 per cent of Vietnam's population will get at least one dose of COVID-19 vaccine by the end of 2021.

Hanoi could ease social-distancing measures since late-September 2021 and Ho Chi Minh City would start relaxing social restriction protocols since early October 2021. Ho Chi Minh City set target to open totally since mid-January next year. Moreover, domestic flights are expected to resume since late-September.

Vietnam is piloting the reopening of some tourism areas such as Phu Quoc Island for international tourists from Q4/2021. In the new forecast, VNDIRECT expects the service sector to slide 0.02 per cent on-year in H2/2021, lower than the increase of 2.4-3.2 per cent on-year in the previous forecast and the 4.0 per cent growth rate seen in H1.

Some service sub-sectors, including accommodation and food service activities; transportation and storage; arts, entertainment, and recreation; administrative and support service activities, may record negative growth in H2.

"We lower our growth forecast for the industry and construction sector to 5.1 per cent on-year in H2/2021 from previous forecast of 7.3-8.3 per cent on-year and the 8.4 per cent growth rate seen in H1 due to stricter social restriction protocols and supply chain disruption. We expect the agricultural, forestry, and fishery sector to grow by 3.6 per cent on-year in H2, lower than the previous forecast of 3.7-4.0 per cent and the 3.8 per cent growth rate seen in H2 due to lower domestic consumption demand," VNDIRECT noted. "Regarding quarterly growth, we forecast GDP growth in Q3/2021 at negative 1.2 per cent on-year before rebounding to 5.7 per cent in Q4."