The World Bank has revised down Vietnam’s GDP growth for 2020 to 4.9%, which is about 1.6 percentage points lower than the projection in its previous report. The country, however, is set to remain the fastest-growing developing economy in the East Asia and Pacific region.
In 2019, Vietnam’s economy continued to show fundamental strength and resilience, supported by robust domestic demand and export-oriented manufacturing. Preliminary data indicate that real GDP grew by about 7% in 2019, close to the rate reported in 2018, and one of the fastest in the region.
While Vietnam remains significantly exposed to the Covid-19 outbreak and the ongoing turbulence in the global financial markets, its economy remains resilient to external shocks in the first few months of 2020, stated the World Bank in its latest publication titled “East Asia and the Pacific in the time of Covid-19.”
Despite the favorable prospect for the economy in the medium term, the country’s GDP growth will be affected negatively by the Covid-19 pandemic, stated the report.
Because of the relatively limited number of infected cases in Vietnam as of end March 2020, “the most important negative impacts associated to the Covid-19 pandemic are on tourism and on manufacturing due to supply chain disruptions,” it added.
Inflationary pressures are projected to increase temporarily, reflecting uncertain prices of food and fuel, and possible trade disruptions.
The external position is projected to deteriorate in 2021, mainly as the result of the fall in exports of services (tourism) and lower FDI inflows. The fiscal deficit will temporary increase in 2020 due to lower revenue and the fiscal stimulus that will partially compensate for the negative effect of the global pandemic on the Vietnamese economy.
The fiscal consolidation process is projected to continue from 2021 onwards, which will help to further reduce public debt as a share of GDP.
Over the medium term, the country's growth is projected to rebound back to 7.5% in 2021 and converge at around 6.5%in 2022, reflecting an improved external demand and a firming of the services sector, as well as a gradual recovery in agricultural production. The economy will also rebound from the global coronavirus pandemic.
Risks
In the short term, the Covid-19 pandemic could create stronger adverse impacts on Vietnam’s economy, especially manufacturing and tourism sectors that are highly dependent on the global economy. The short-term impact on Vietnam’s economic activities could be significant but short lived if the pandemic is rapidly contained as experienced in other epidemic episodes. Other short-term risks include the continuous slowdown in global economic activity and trade flows as Vietnam’s economy is one of the most open in the world.
Looking forward, Vietnam could manage the above external risks by diversifying its trade flows and improving its competitiveness. Vietnam’s adhesion to new trade agreements, such as the EU – Vietnam Free Trade Agreement (EVFTA), will support this effort.
