Hanoi, July 30, 2020—While Vietnam’s economy has been seriously impacted by COVID-19, it remains resilient and is poised to bounce back, according to a new World Bank report.
According to the latest Taking Stock report, titled “What will be the new normal for Vietnam? The economic impact of COVID-19”, released today, although the Vietnamese economy suffered from COVID-19 in the first half of 2020, prospects remain positive for both the short and medium term. If the world situation gradually improves, economic activity should rebound in the second semester of 2020 so that the economy will grow at around 2.8 percent for the entire year, and by 6.8 percent in 2021. With less favorable external conditions, the economy will expand by only 1.5 percent in 2020 and 4.5 percent in 2021.
The main challenge for Vietnam will be finding new drivers of growth to consolidate the expected recovery. The country’s traditional sources of growth–foreign demand and private consumption–are unlikely to return to their pre-crisis levels soon, amid continued uncertainties both at home and abroad. COVID-19 has also caused a surge in inequality as the pandemic affects businesses and people differently as, for example, workers in the service sector has seen a bigger decline in their income than farmers.
“To adapt to the new normal, policymakers must find new ways to compensate for the weakening of the traditional drivers of growth while managing rising inequality,” said Stefanie Stallmeister, World Bank Acting Country Director for Vietnam. “However, by being ahead of the curve of the COVID-19 crisis, Vietnam has the unique opportunity to increase its footprint on the global economy and become a leader in tomorrow’s digital world.”
The report suggests three complementary measures for the government to act today so that the country can avoid the COVID-19 economic trap and return to its historical trajectory of rapid and inclusive growth. First, it should consider removing mobility restrictions on international travel, gradually and carefully to balance with safety concerns, as Vietnam’s economy is dependent on foreign visitors and investments. The second measure is to accelerate the execution of the existing public investment program to enhance domestic demand. However, the effective implementation of this action will require significant improvements in the allocation of resources and financial management. Indeed, the authorities will need to ensure that their resources are directed to the projects with the biggest positive impact on the economy and jobs, while minimizing technical and financial losses during implementation. Third, it should provide targeted support to the private sector, particularly to the hardest-hit industries such as tourism and manufacturing exports, through a combination of financial assistance and smart incentives.
Vietnam can also exploit several global trends, which have been accelerated by COVID-19, to push ahead its domestic agenda. For example, in a new global trading system, Vietnam can consolidate its existing footprint by developing strategic alliances with countries that have also low rate of COVID-19-infections and boosting promotion efforts to attract companies planning to diversify their supply chains. Similarly, COVID-19 presents a unique opportunity to move toward a more “contact-free” economy by promoting digital payments, e-learning, telemedicine and digital data sharing and, by so doing, help respond to the fast-expanding demand for quality services by the middle-class in the country.
Taking Stock is the World Bank’s bi-annual economic report on Vietnam.