Viet Nam transitions from successful pandemic containment to strong economic recovery: AMRO

Tuesday, Feb 23, 2021 08:32

People dine at Ta Hien Street in Ha Noi. Viet Nam’s GDP is expected to rebound to 7 per cent in 2021, riding on a recovery in external demand, a resilient domestic economy and increased production capacity. — VNA/VNS Photo Hoang Hieu

Viet Nam’s gross domestic product (GDP) is expected to rebound to 7 per cent in 2021, riding on a recovery in external demand, a resilient domestic economy and increased production capacity, according to the preliminary assessment by the ASEAN+3 Macroeconomic Research Office (AMRO) after its virtual annual consultation with the Vietnamese authorities in the last two months.

Amid heightened uncertainty, continued policy support is essential to bolster the nascent economic recovery and facilitate the transition to the post-pandemic “new normal”.

“Viet Nam’s economic growth slowed to 2.9 per cent in 2020 due to the pandemic but is expected to rise to 7 per cent in 2021,” said AMRO’s lead specialist Dr. Seung Hyun Luke Hong.

“The rebound is expected to be underpinned by a recovery in external demand, a resilient domestic economy, capital inflows, and increased production capacity,” Hong said.

After a disrupted second quarter, Viet Nam’s economy started to pick up in the third quarter of 2020 thanks to the rebound in manufacturing activity, which was boosted by robust export growth. Meanwhile, domestic consumption also bounced back following the relaxation of mobility restrictions, along with the recovery benefited from acceleration in the disbursement of public investment.

However, the AMRO team also pointed out some risks and vulnerabilities for the rebound in 2021. They include uneven recovery of the global economy which may jeopardise the recovery in external demand, susceptible domestic demand to the risk of further waves of COVID-19 infection, impairment of the balance sheets of the business sector and the hit on unemployment and labour market.

On the financial front, there is a risk that a deterioration of the banking system’s asset quality will erode its relatively thin capital buffers. Vulnerabilities may also emerge from the sizeable consumer loan segment and from a sharp rise in the holdings of corporate bonds by banks.

The team recommended the Vietnamese Government provide greater fiscal support through both revenue and expenditure measures to bolster the nascent economic recovery if the growth momentum were to weaken.

Targeted support to micro, small and medium enterprises and low-income households also needs to continue and be regularly reviewed for its relevance and effectiveness, it said.

Meanwhile, given the benign inflation outlook, it is essential that monetary policy remains supportive of economic recovery, keeping financing costs affordable for households and businesses. On the external front, with high uncertainties in the post-pandemic global recovery, the authorities should strengthen the external buffer through greater flexibility in the exchange rate.

Lastly, the team said it is essential to ensure continued support for long-term development issues, such as infrastructure development, human capital development, social safety net, and particularly public health, while carefully managing risks to long-term fiscal sustainability. — VNS


Comments (0)