Vietnam Likely to Have Fastest Growth in Southeast Asia

9:34:47 AM | 6/29/2020

The Asian Development Bank (ADB) forecast that Vietnam’s economic growth will be 4.1% in 2020, 0.7 percentage points lower than its estimate in April, but still the highest expected in Southeast Asia.

Economic activity in Southeast Asia is expected to contract by 2.7% in 2020 before growing by 5.2% in 2021 as growth decline is forecast in key economies as containment measures to address the Covid-19 pandemic have affected domestic consumption and investment, including Indonesia (-1.0%), the Philippines (-3.8%), and Thailand (-6.5%).

Remarking on Vietnam’s economic resilience in the post-Covid-19 period, Mr. Eric Sidgwick, ADB Country Director for Vietnam, once said that Vietnam has a very convenient position. Vietnam has made good growth, achieved high socio-economic development, and ensured macro-economic stability for many years. Although it witnessed a decline in GDP growth, the degree was less than many other countries. Vietnam’s growth decelerated to 3.8% in the first quarter of 2020 from 7% a year ago but this was still a positive growth while many countries in the region are going into recession. In addition, with its success in controlling the epidemic, Vietnam carefully restored its manufacturing and business activity.

Notably, foreign investment in Vietnam has kept rising in recent years. Right before the outbreak of Covid-19, , Vietnam welcomed FDI flows redirected to the country amid US-China trade tensions. In 2019, the FDI value into the country reached US$38.02 billion, 7.2% more than in 2018. The disbursed FDI value was projected at US$20.38 billion, up 6.7% over 2018.

However, in the first five months of 2020, foreign investors registered to invest US$13.98 billion, down 17% year on year. Their disbursed value was forecast at US$6.7 billion, down 8.2% year on year.

Foreign direct investment is contracting in the world but Vietnam still shows its appeal to foreign investment. global capital flows are still seeking a destination and companies will find a good country to invest in. Vietnam already has many advantages for foreign investment flows. Having successfully controlled the disease, much better than other countries in the world, Vietnam still needs to consolidate its advantages to attract FDI flows in the future.

Contrary to Vietnam's growth outlook, ADB estimated that developing Asia will hardly grow in 2020 as containment measures to cope with the Covid-19 pandemic are hindering economic activity and weaken external demand.  The ADB projected growth of 0.1% for the region in 2020, down from the 2.2% forecast in April, which will be the slowest pace for the region since 1961 (The growth this year was projected at 6.2% in April. Gross domestic product (GDP) in 2021 will be lower than previous forecasts and below the pre-crisis period.

“Economies in Asia and the Pacific will continue to feel the blow from the Covid-19 pandemic this year, even as lockdowns are slowly eased and select economic activities restart in a ‘new normal’ scenario,” said ADB Chief Economist Yasuyuki Sawada. While we see a higher growth outlook for the region in 2021, this is mainly due to weak numbers this year and this will not be a V-shaped recovery. Governments should undertake policy measures to reduce the negative impact of Covid-19 and ensure that no further waves of outbreaks occur.

Nevertheless, this outlook is still at risk of decline. Another breakout of Covid-19 pandemic may occur in the coming period and financial crises and public debt cannot be eliminated. Risks also come from new escalations in US-China trade tensions.

By Lan Anh, Vietnam Business Forum