The latest wave of coronavirus infections continues to drag the Vietnamese economy this year, with the World Bank slashing its 2021 GDP growth forecast to 4.8 per cent from its previous estimate of 6.8 per cent.
|The World Bank lowered Vietnam's 2021 economic growth outlook to 4.8 per cent |
Vietnam’s GDP is expected to expand by about 4.8 per cent in 2021, although it has posted a robust economic performance in the first half of this year. This forecast, which is two percentage points lower than the projection made by the World Bank in December, accounts for the negative impacts of the ongoing pandemic on economic activities.
The forecast was made in the latest edition of Taking Stock – the World Bank’s biannual update on Vietnam’s economic performance released today – highlighting the economic pains associated with the most recent COVID-19 outbreak. The mobility measures adopted by the government to contain the pandemic have hit the economy domestically.
In July, retail sales fell by 19.8 per cent on-year, the largest drop since April 2020, while the purchasing managers’ index also declined significantly. On the external front, the merchandise trade balance turned into a deficit over the past few months, while foreign investors have demonstrated some caution. It appears that disruptions in industrial zones and supply chains caused by the broad-based COVID-19 resurgence have forced exporters to close factories temporarily or delay production.
“Whether Vietnam’s economy will rebound in the second half of 2021 will depend on the control of the current outbreak, the vaccine rollouts, and the efficiency of the fiscal measures to support affected business and households and stimulate the recovery,” said Rahul Kitchlu, World Bank acting country director for Vietnam. “While downside risks have heightened, economic fundamentals remain solid in the country, and the economy could converge towards pre-pandemic GDP-growth rate of 6.5-7 per cent from 2022 onwards.”
The report suggests that the authorities should address the social consequences of the crisis by improving the depth and effectiveness of social protection programmes. They should also watch out for rising risks in the financial sector, with particular attention to non-performing loans. Greater attention should be given to fiscal policy, since policymakers will need to find the right balance between the need to support the recovery of the economy and the necessity to maintain a sustainable level of public debt.