Hard to Maintain Economic Growth Pace

9:12:03 AM | 11/8/2020

Vietnam's economic growth rate is likely to be negative in the last five months of 2020 due to effects of the second outbreak of the Covid-19 pandemic seen in recent days.

Poor prospects

Vietnam is among very few countries in the world to make positive economic growth in the second quarter of 2020, reaching 0.36%. Its GDP growth was 1.81% in the first half of the year.

On July 21, the Vietnam Institute of Economic and Policy Research (VEPR) forecast that the Vietnamese economy is highly likely to grow by 3.8% in 2020. At a lower scenario, the economy may expand by only 2.2%. VEPR experts said that Vietnam's economic prospects in 2020 depend on how the Covid-19 pandemic is controlled, domestically and globally.

However, this forecast did not account for the outbreak of Covid-19 in some localities such as Da Nang and Quang Ngai at the end of July. Mr. Nguyen Duc Thanh, former Director of VEPR, forecast that, if some major economic centers are locked down to contain the pandemic, it will be a success if the country can flatten the curve; otherwise the economy is likely to experience negative growth.

Besides negative impacts of the pandemic, Vietnam is also facing many risks and challenges in an unpredictable world economic environment. Many countries continue to adopt lockdown measures and prolong supply chain disruptions. Geopolitical tensions and conflicts among large countries may cause an open economy like Vietnam to confront unexpected risks.

According to VEPR, Vietnam's economic weaknesses also come from internal risks such as high fiscal imbalance, slowing development investment, especially infrastructure investment, an improved but vulnerable banking - financial system, heavy dependence on the FDI sector and foreign technological and input supplies, low labor quality, ineffective and bureaucratic public administration, stalled equitization of State-owned enterprises (SOEs), and low-quality business environment and institutions.

“Life buoys” such as domestic consumption stimulus and tourism stimulus are unlikely to produce effective outcomes in the coming time. The prospect of GDP recovery in the third quarter is significantly reduced. Besides, the northern region is about to enter autumn and winter when the pandemic is more difficult to control than in summer, Mr. Thanh said.

Currently, the consumer price index (CPI) growth is tending to slide to 4%. However, Mr. Nguyen Ba Minh, Director of the Institute of Economics and Finance, said that there are two main factors that drive CPI in the last months of 2020: The rebound of global input prices amid the Covid-19 pandemic and the complicated development of natural disasters and epidemics in Vietnam (especially African swine fever, drought, saltwater intrusion, extreme temperature and storms) that are likely to greatly affect agricultural production, supply and demand of goods in the market.

Narrow wayout

Mr. Can Van Luc, Chief Economist at Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), said that key drivers of Vietnamese economy in the first six months of 2020 amid the pandemic outbreak were agriculture and industrial manufacturing. Accordingly, this sector contributed about 5% to the overall growth, partly because public investment and construction continued during social distancing time.

According to VEPR, during this tough time, agriculture became a key driver of growth in the first half as it expanded by 1.81%, contributing 12% to the overall growth, doubling its contributions from a year earlier.

According to experts, major momentum for Vietnam's economic prospects in the remaining time of 2020 include the EU - Vietnam Free Trade Agreement (EVFTA) and the EU - Vietnam Investment Protection Agreement (EVIPA) and public investment. Besides, input costs will stay low due to the decline in demand for consumption and production; the redirected investment wave aimed to disperse risks from U.S.-China trade tensions and take advantage of investment preferences in Vietnam, macro stability and controlled inflation.

VEPR experts recommended accelerated disbursement of public investment to spur economic growth. Therefore, public investment is the key solution, not consumer demand.

In the most difficult time - the nationwide social distancing in the second quarter, GDP still grew 0.36%. Mr. Tran Tho Dat from the National Economics University is optimistic that, as Vietnam had experience in controlling the pandemic during the social distancing in April, the economic impact of current social distancing measures will be less severe than the first time.

Dr. Dinh Trong Thinh, senior lecturer of the Academy of Finance, said, it is necessary to maintain macroeconomic stability, control inflation, ensure major balances, and create a foundation for sustainable economic recovery and development. At the same time, it is important to strengthen price and market inspection and supervision, especially into essential goods and services, to ensure price stability. For commodities scheduled to have price hikes, it is essential to clearly determine the rate and time of application to avoid negative impacts caused by improper timing of application.

By Huong Ly, Vietnam Business Forum