Expectations for a new phase of growth

Saturday, 2021-02-13 07:48:39
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Phu My Bridge in Ho Chi Minh City (Photo: VNA)
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NDO - After recording a positive growth rate amid the Covid-19 pandemic in 2020, the Vietnamese economy is forecast to continue recovering thanks to domestic consumption recovery, stable trade growth and strong foreign investment in 2021.

Although some potential risks remain, experts and international organisations are optimistic that Vietnam will be fully able to achieve its economic targets for this year.

Efforts to weather the storm

2020 was an extremely difficult year for the Vietnamese economy as well as the global economy. The Covid-19 pandemic and natural disasters caused GDP growth to drop to the lowest level in years, but Vietnam’s GDP still grew by 2.91%, helping Vietnam maintain the position as one of the fastest-growing economies in 2020.

According to Director of the Central Institute of Economic Management Tran Thi Hong Minh, it was the lowest growth rate during the 2016-2020 period but given that the world is still gripped by Covid-19 it was a noteworthy achievement.

Besides growth, there are also other bright spots in Vietnam’s economic picture such as a record trade surplus of US$19 billion and nearly US$15 billion in foreign investment pledged to 2,500 projects. Last year also saw the establishment of about 180,000 new enterprises, up 0.9% from the previous year and the rate of public investment disbursement reached 90%, the highest in the past ten years. More importantly, Vietnam managed to maintain macroeconomic stability with inflation under 4%.

Director of the General Statistics Office Nguyen Thu Huong said with a growth rate of 5.82%, the manufacturing sector played a key role in the growth of industrial production and the broader economy. She said the fact that manufacturing recorded decent growth was partly thanks to the Covid-19 pandemic being well contained at home. Despite some concerns over the disruption of supply chains, the export of certain goods still sustained growth, such as electronics, computers, steel and machinery.

The financial, banking and insurance services sector also recorded relatively high growth at 6.87%, with insurance posting an impressive growth rate of 17%, the reason of which could be public concern over the pandemic. The agricultural sector also grew by 2.68% and remained an important pillar of the economy during difficult times.

According to experts, such an achievement was the result of the efforts of the whole political system and economic sectors in implementing the double goal of preventing Covid-19 and promoting economic growth, as well as of Vietnam’s joining new-generation free trade agreements, notably the EU-Vietnam Free Trade Agreement (EVFTA), which came into force in August.

According to Minh, the reasons behind Vietnam’s growth success in 2020 were the effectiveness in epidemic prevention and the Government’s administration role. The Government took aggressive actions in areas which had lagged for years such as public investment. In addition, the Government introduced appropriate support for the business community so that they can weather the difficult time.

Commenting on Vietnam’s economic growth in 2020, the World Bank stated that Vietnam was a bright spot in the region thanks to the resilience of the domestic sector and foreign trade amid the Covid-19 pandemic. The Government not only was able to contain the pandemic with early, strong and creative measures, but also employed fiscal and monetary policies to remove difficulties facing the private sector and bolster recovery. For example, public spending began to grow again after three years of fiscal tightening. The World Bank also recognised foreign trade as a main driver of growth over the past decade and the sector has recorded good performance since the pandemic began.

Steppingstone for a new period

2021 is particularly significant as it is the first year of implementing the 2021-2030 socio-economic development strategy and the 2021-2025 socio-economic development plan. It is also the year with expectations for major economic policies that will create new growth breakthroughs in the next phase.
The National Assembly is targeting growth of 6%, GDP per capita of US$3,700 and inflation of 4% for 2021. The Government has determined consumption, export and investment as the three main growth drivers in 2021, with high expectations for exports thanks to the trade pact with the EU as well as other bilateral and multilateral agreements such as the one with the UK signed in November last year.

Looking forward to 2021, most international organisations and experts believe that Vietnam will remain a bright star, benefitting from a recovery led by technology, strong foreign investment flow and various trade agreements. Vietnam also boasts a stable political environment and an improved business climate. In its latest forecast, HSBC projects that the Vietnamese economy could expand by 7.6% in 2021 while the International Monetary Fund put Vietnam’s growth at 6.5%. The World Bank is also upbeat about Vietnam’s outlook, predicting that growth for this year will be 6.8%.

According to Dr Minh, the growth target of 6% requires huge efforts of the whole political system since the Covid-19 pandemic remains complicated around the world and Vietnam, with a high degree of openness, will be greatly affected. She noted that although vaccine development has seen positive progresses, the vaccination process will not be completed in 2021.

Therefore, the Government needs to pay attention to a number of issues such as the Covid-19 pandemic situation, the US-China trade war and technological developments so as to update its policies promptly. In addition, it is necessary to continue strengthening macroeconomic stability, building trust of the business community so that they can join hands to ride out challenges towards economic recovery. More favourable conditions are also needed to attract the shifting investment flows.

Director of the General Statistics Office Nguyen Thi Huong stated that the Government needs to introduce breakthrough policies in order to pressurise companies to enhance technological application and gradually increase the innovation capacity in production and business activities. For his part, Associate Professor Dinh Trong Thinh with the Academy of Finance stated that the Government needs to further accelerate the pace of public investment while providing appropriate support for enterprises such that they remain enthusiastic about doing business.

What is particularly important is developing the domestic market to create more opportunities for the business community. It is necessary to harness the strength of new economic models, such as the sharing economy and the night-time economy. At the same time, Vietnam needs to continue looking for more export opportunities by utilising new free trade agreements such as the CPTPP and EVFTA.

Despite facing numerous difficulties, the Vietnamese economy has demonstrated its appeal of a highly integrated and dynamic economy. The economic results that Vietnam achieved in 2020 will help lay the groundwork for further growth in 2021.