External trade a new driver of Vietnam economic growth

As domestic production and services sectors continue to struggle with Covid-19 impacts, external trade with the foreign-invested sectors playing a leading role will serve as the driving force for Vietnam’s economic growth this year.

Cargo handling at Hai Phong port. Photo: Lam Khanh

This comes as the fact that the latest Covid-19 outbreak in Vietnam since late January has not been fully contained, while the lockdown imposed in some localities are still posing negative impacts on socio-economic activities, said Head of Science Management Division under the National Economic University To Trung Thanh at a conference discussing Vietnam’s economic prospects in 2021 on March 31.

Thanh, however, acknowledged the fact that Vietnam’s trade will highly depend on the recovery of global economy and its resilience against external shocks, leaving “the 6.5%-growth target this year a challenging task.”

Meanwhile, Thanh expected public investment to play an active role for economic recovery in 2021 and partly offset the lack of investment capital from the private sector.

But given the limited fiscal resources after years of budget deficit, he said public investment could not be a long-term solution to aid growth.

“The biggest challenge for Vietnam’s economy in 2021 is whether the country could deal with another resurgence of Covid-19 outbreak, as limited room remained for further fiscal and monetary intervention,” Thanh said.

While the government may be forced to turn to easing monetary policy to support the economy, macroeconomic risks may increase, he suggested.

Sharing Thanh’s view, Chief Economist of the Vietnam Institute for Economic and Policy Research (VEPR) Pham The Anh urged the government to be cautious about keeping an easing monetary policy for a long period, especially as economic activities are starting to normalize.

“This requires fiscal support should be on target and only subject to those severely affected by the pandemic,” Anh said.

“For Vietnam to maintain long-term growth, the most important issue is to effectively mobilize resources from the public and keep a stable macro-economic environment,” Anh added.

At the conference, experts said along with short-term solutions to minimize Covid-19 impacts, the government should remain steadfast on pursuing long-term reform to improve the country’s macro-economic base and reduce future risks, including revising growth model based on innovation and technology; promoting startups; and maintaining equal treatment for different economic components.