*Võ Trí Thành
Việt Nam has delivered its economic data in the first quarter. The overall picture is still optimistic with the gross domestic product (GDP) expanding nearly 4.5 per cent – among the best performers in the world. However, is this result good enough for the Southeast Asian country to securely triumph over its target set for the whole year?
The first quarter growth, though in the same range as the last quarter of 2020 which also stood at 4.48 per cent, was up from the 3.68 per cent recorded in the first quarter of last year.
The renewed outbreak of COVID-19 in some parts of the country, including the capital city of Hà Nội, adversely affected the first-quarter's performance which fell below the Government’s expectation of 5.12 per cent and was lower than the 5.7 per cent expected by Bloomberg’s economists.
Despite that, Việt Nam has been widely praised for its economic achievements given all the uncertainty about the prolonged pandemic and uneven recovery globally. Việt Nam is still set to outperform most of the region.
Key indicators in the first three months have partly reflected Việt Nam’s good recovery.
Exports remained the country’s key economic growth driver with a value of US$77.4 billion during January-March, a rise of 22 per cent year-on-year. Việt Nam ran a trade surplus of more than $2 billion in the first quarter.
Pledged foreign direct investment (FDI) surged by 18.5 per cent year-on-year to $10.3 billion while disbursed FDI increased by 6.5 per cent to $4.1 billion.
Industrial production was expected to expand 6.5 per cent during the period, especially the main drivermanufacturing – electronic equipment, phones and accessories – climbing 9.5 per cent. The number of new businesses fell by 1.4 per cent and their total registered capital rose by 27.5 per cent.
Other sectors including agro-forestry-fishery, services sector, disbursement of public investment and State revenue improved significantly. Meanwhile, inflation was kept at a low level, rising by just 0.29 per cent in the first three months.
Both domestic and worldwide economists have maintained a positive forecast for Việt Nam’s economy since the end of last year. Many international organisations delivered a GDP forecast of around 7 per cent for Việt Nam in 2021. Meanwhile, Vietnamese Government has set the yearly growth target of 6.5 per cent, higher than the official target of 6 per cent set by the Parliament.
This optimism is based on Việt Nam’s performance in 2020 with impressive accomplishments in implementing the dual goals of combating the pandemic and maintaining economic growth. Việt Nam was among very few countries with positive growth in 2020. Adverse impacts on the economy and society were also minimised during the pandemic.
The year 2020 was seen a turbulent year when every country had to brave unprecedented challenges arising from COVID-19 to save people’s lives and diminish the impact on the economy. This year, economists have agreed the world is on track to recover, with strong growth in major economies which plummeted last year due to the disease and restriction measures.
In its March report, Fitch ratings expect global GDP to expand by 6.1 per cent, revised up from 5.3 per cent in its December forecast thanks to robust fiscal support in major economies. GDP outturns are projected at 6.2 per cent in the United States, 8.4 per cent in China and 4.7 per cent in the eurozone.
However, the recovery is also perceived with a conservative stance as it depends largely on the readiness and effectiveness of vaccines, as well as countries’ resilience to financial and inflation risks. The recovery in the current context is also associated with sustainable and green development, restructuring the economy and promoting innovation and digital transformation.
In Việt Nam, a period of three months is not long enough to fully reflect the challenges facing the country. Việt Nam has been doing very well in controlling the pandemic but the risk of fresh outbreaks is still high which could be seen in the resurgence of the virus in some northern provinces early this year. Besides, the vaccination process cannot be fast and as the Government has said, the prevalence of vaccination must wait until next year.
Strong recovery in some key sectors such as tourism and aviation is still a challenge as it depends heavily on the disease control in both home and foreign markets.
Although inflation in the first quarter was low at 0.29 per cent – the lowest for Q1 within 20 years, there is still inflation risk when oil prices climbed by more than 30 per cent compared to the end of last year and commodity prices are on the rise in global markets. Such a possibility may put pressure on monetary policy which must both support economic recovery (through low interest rates) and ensure macroeconomic stability, especially volatility in the stock market and real estate market.
In this context, consumption growth somewhat slowed and uncertainty in the global supply chain are also unrevealed problems in the long term. (The Suez Canal shutdown exposes another weak link in the global supply chain.)
The resurgence of the virus in some provinces early this year weighed on national Q1 GDP growth (below the Government’s expected rate of 5.12 per cent). Thus, to reach the year-end target of 6.5 per cent, GDP in the next quarters must increase by more than 7 per cent on average, which is a big challenge.
After the Q1 economic data, some international organisations have revised down their forecast for Việt Nam’s growth. The United Oversea Bank (UOB) lowered Việt Nam’s GDP growth to 6.7 per cent in 2021 from 7.1 per cent. Meanwhile, economists at Singapore’s Maybank Kim Eng revised Việt Nam’s economic growth from 6.8 per cent to 6.5 per cent.
However, most forecasts agreed with the latest virus wave being quashed and most restrictions now being lifted, Việt Nam’s economy should bounce back strongly over the coming quarters.
The new Government will take office this month and the transition will result in a certain delay in implementing policies. Hopefully, the new Government will quickly start working and take more drastic measures to improve the investment and business environment, push reform and economic restructuring, promote innovation and speed up disbursement of public investment. Public investment still plays important role in boosting growth amid the pandemic and has large room for development.
If Việt Nam can take advantage of the global economy’s recovery momentum and existing free trade agreements with other countries, the GDP target of 6.5 per cent is feasible.
*Võ Trí Thành is a senior economist at the Central Institute for Economic Management (CIEM) and a member of the National Financial and Monetary Policy Advisory Council. The holder of a doctorate in economics from the Australian National University, Thanh mainly undertakes research and provides consultation on issues related to macroeconomic policies, trade liberalisation and international economic integration. Other areas of interest include institutional reforms and financial systems.