What is the outlook of Vietnam's economy after Tet Holiday?

Michael Kokalari, chief economist at VinaCapital

One of my favourite things about this time of year is hearing the song “Ngay Tet Que Em”, which gives me a sentimental feeling about the 12 years that I have lived in this very special country that I love and admire. And my favourite thing to do during the Tet holiday is to catch up on reading books about the “big picture” social and economic trends that impact Vietnam, Asia, and the rest of the world.

This year, I’m reading the pre-publication manuscript of an outstanding book titled, “Vietnam, the Path to 2050” written by my bosses Brook Taylor, and by Sam Korsmoe who is an outstanding writer, studied Vietnamese at the University of Hanoi in 1990, and who also wrote the book “Saigon Stories”, which I’m hoping to read during my summer vacation!

Regarding Vietnam’s economy in 2021, we made a forecast at the end of last year that Vietnam’s GDP would grow by 6.5 per cent in 2021, and our forecast assumed that there would probably be some sporadic COVID-19 outbreaks this year – like the current one – but that such sporadic outbreaks would not overly impact the country’s economy this year.

The stock market seems to agree with our view, evidenced by the fact that VN-Index bounced back so quickly from its initial sell-off after the most recent COVID outbreak was reported on January 27. Last August, it took over one month for the VN-Index to rebound after the Danang outbreak emerged, but it only took one week for the VNI to rebound after the most recent outbreak in the north of Vietnam emerged.

The increase in investors’ confidence stems partly from the fact that the government has now repeatedly demonstrated its ability to handle COVID-19 without overly impacting the economy. This has also made consumers feel confident, so we expect the growth of Vietnam’s household consumption to rebound to around 8-9 per cent this year.

That said, we do not expect foreign tourism to recover this year, which is the reason we do not think it is possible for the economy to grow by more than 6.5-7 per cent this year – in contrast to some overly optimistic forecasts that Vietnam’s 2021 GDP growth could be as high as 10 per cent.

Next, we think Vietnamese manufactures will continue to be very busy this year, producing the so-called “stay at home” goods that consumers in the US and other developed countries need to spend more time working and staying at home. The production and export of such goods lifted Vietnam’s trade surplus to a record high of $20 billion last year, and Vietnam achieved a trade surplus of over $2 billion in the month of January, driven by an incredible 72 per cent on-year surge in exports to the US!

Finally, one of my biggest concerns about Vietnam’s economy in 2021 is the possibility that the insatiable demand for products made in Vietnam by consumers in the US and other developed countries may slow due to a variety of domestic factors in those countries.

I’m especially concerned that the amount of all products (including those made in Vietnam and China) purchased by US consumers fell for three months in a row starting in November, so I’ll closely watch the latest US retail sales figures that the US government will publish on February 17.