Vietnam’s growth outlook remains optimistic despite latest Covid-19 outbreak

Despite the recent resurgence of Covid-19 cases, Vietnam’s growth outlook remains optimistic and its gross domestic product (GDP) growth would be the fastest among the Southeast Asian economies in the second half of 2021, according to Oxford Economics.

A man works at an FDI firm in Vietnam. Although a resurgence of Covid-19 cases and reimplementation of restrictions are affecting the near-term outlook, Vietnam is predicted to remain the fastest growing economy in Southeast Asia in 2021 - PHOTO: HUNG LE

The economic outlook report is optimistic due to an improvement in global trade activities, accommodative macro policies, continued government fiscal support and low interest rates.

The recovery will also depend on the progress of vaccine rollouts and whether the possibility of further lockdowns remains high in the near term.

According to the latest Economic Outlook report from Oxford Economics, commissioned by chartered accountancy body ICAEW, which was released on June 7, Vietnam was one of the only economies in the world to grow in 2020, due to its success in containing the pandemic.

This early success enabled the economy to benefit from the surge in global trade activity and enjoy strong foreign direct investment flows that boosted export-oriented and manufacturing industries.

Singapore and Vietnam are expected to continue leading the region in recovery. Although the fourth Covid-19 wave in Vietnam, which began late April, has affected its manufacturing sector and export industries, its economy is predicted to rebound swiftly once restrictions are lifted.

Recent lockdown restrictions in the country led to decreased household spending in the second quarter of 2021. However, it is unlikely to dip significantly, as households and businesses are better equipped with digitalization to enable them to work and shop remotely. Governments have also used more targeted measures to minimize disruption.

Major uncertainties which could affect post-pandemic recovery still remain, such as vaccine effectiveness in halting the spread of new coronavirus variants, consumer caution and the return of inflation, which could mean that GDP will remain below potential.

The Economic Outlook report predicted that Southeast Asia’s GDP will rebound to 4.8% in 2021, after contracting 4.1% in 2020.

GDP growth was weaker in the second quarter of 2021 than in the first quarter across most economies in the region, as tighter restrictions hit already fragile sectors which are negatively affected by social distancing measures or lowered household spending.

Despite these headwinds, accommodative macroeconomic policies and a surge in world trade means that most of Southeast Asia will still record impressive GDP growth figures this year.

“While most Southeast Asian economies have experienced a surge in Covid-19 cases since the start of 2021, leading to the reinstatement of social distancing measures, this has dimmed but not derailed regional economic recovery,” said Mark Billington, Managing Director International, ICAEW.

“Moving forward, the progress on vaccination will continue to be an important barometer for growth in the second half of 2021. We expect that countries which are able to contain new Covid-19 cases and reach high levels of vaccinations will outperform the rest of the region and be better placed for recovery.”