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Vietnam to stay among Asia’s fastest growing economies despite sharp slowdown: ADB

Apr 6, 2020

If the pandemic is contained within the first half of 2020, Vietnam’s growth should rebound to 6.8% in 2021 and remain strong over the medium and long-term, according to ADB.

Vietnam’s economic growth rate is expected to slow sharply in 2020, to 4.8%, but remains among Asia’s fastest growing economies, the Asian Development Bank (ADB) has said in a report released today [April 3].

5 YR MOVING AVERAGE
Such a slowdown came from the initial supply shock to economic activity from the outbreak of the Covid-19 and the subsequent and ongoing drop in demand from Vietnam’s principal trade and investment partners, stated the report.

The economy’s fundamentals, however, remain resilient, according to ADB’s flagship annual economic publication, the Asian Development Outlook (ADO) 2020. If the pandemic is contained within the first half of 2020, growth should rebound to 6.8% in 2021 — ADB’s pre-Covid-19 forecast for Vietnam in 2020 — and remain strong over the medium and long-term.

“Despite the deceleration in economic activity and the downside risks posed by the Covid-19 pandemic, Vietnam’s economic growth is projected to remain one of the highest in Southeast Asia,” said ADB Country Director for Vietnam Eric Sidgwick.

Drivers of economic growth – a growing middle-income class and a dynamic private sector – remain robust. The middle class in Vietnam is one of the fastest growing in Southeast Asia. According to Boston Consulting Group, the middle class has doubled in size since 2014 to 33 million, or a third of the population.

The country’s business environment continues to improve. Public spending to combat the impact of the pandemic, which rose significantly in January and February, will likely be raised further.

The large number of bilateral and multilateral trade agreements Vietnam participates in, which promise improved market access, will help the country’s economic rebound. Vietnam would also benefit from the containment of the Covid-19 pandemic and eventual return of economic growth in China, which would help revive the global value chains.

ECONOMIC INDICATORS

Growth in agriculture stagnated because of lower demand for agricultural exports and severe salinity intrusion in the Mekong Delta. Growth in services, the sector hardest hit by the pandemic, was halved to 3.2% in the first quarter of 2020, down from 6.5% in the corresponding period in 2019.

To support economic activity, in early March the government unveiled a US$10.8 billion (0.4% of gross domestic product) credit relief package of debt restructuring and lowered interest rates and fees. The government also launched a fiscal package worth US$1.3 billion that reduces taxes and fees for affected firms and defers tax payment, and the fiscal support is expected to rise. The central bank also cut policy rates by 0.5-1.0%, lowered interest rate caps on dong deposits of less than 6 months and on short-term dong lending to prioritized sectors.

ADB’s prediction is similar to World Bank’s forecast growth of 4.9% for Vietnam this year, while Fitch Solutions, a subsidiary of Fitch Group, anticipated the country’s growth at only 2.8%.

The government-run General Statistics Office maintained the view that the 6.8% growth target is still attainable.

Source: The Hanoi Times

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