Hanoi, August 24, 2021—Vietnam’s GDP is expected to expand by about 4.8 percent in 2021, although it has posted a robust economic performance in the first half of this year. This forecast, two percentage points lower than the projection made by the World Bank Group in December 2020, accounts for the negative impacts of the ongoing COVID-19 wave on economic activity.
The forecast was made in the latest edition of Taking Stock – the World Bank’s biannual update on Vietnam’s economic performance released today – highlighting the economic pains associated with the most recent COVID-19 outbreak. The mobility measures adopted by the government to contain the pandemic have hit the economy domestically.
In July, retail sales fell by 19.8 percent year-over-year (y/y), the largest drop since April 2020, while the Purchasing Managers’ Index also declined significantly. On the external front, the merchandise trade balance turned into deficit over the past few months while foreign investors have demonstrated some caution. It appears that disruptions in industrial zones and supply chains caused by the broad-based COVID-19 resurgence have forced exporters to close factories temporarily or delay production.
“Whether Vietnam’s economy will rebound in the second half of 2021 will depend on the control of the current COVID-19 outbreak, the effective vaccine rollout, and the efficiency of the fiscal measures to support affected business and households, and to stimulate the recovery,” said Rahul Kitchlu, World Bank Acting Country Director for Vietnam. “While downside risks have heightened, economic fundamentals remain solid in Vietnam, and the economy could converge toward the pre-pandemic GDP growth rate of 6.5 to 7 percent from 2022 onward.”
The report suggests that the authorities should address the social consequences of the COVID-19 crisis by improving the depth and effectiveness of social protection programs. They should also watch out for rising risks in the financial sector, with particular attention to non-performing loans. Greater attention should be given to fiscal policy since policymakers will need to find the right balance between the need to support the recovery of the economy and the necessity to maintain a sustainable level of public debt.
In addition to analyzing the recent trends of the economy, this edition, titled “Digital Vietnam - The Path to Tomorrow”, focuses on what Vietnam needs to do to realize its ambition of becoming one of the most advanced digital economies in the world. The COVID-19 crisis has accelerated the digital transformation of the local economy as an increasing number of businesses in Vietnam are now offering their services online. The government has also enhanced the digitalization of its procedures and databases.
The report argues that for most countries in the world, including Vietnam, becoming a digital powerhouse will not be determined by the ability to produce technological breakthroughs, but rather the capacity to make the most of digital technologies developed elsewhere.
Beyond modern infrastructure, three solutions are at play to build the nation’s digital capabilities and the government is at the center of it. Policymakers need to encourage businesses and workers to acquire the right skills to take advantage of the digitalization transformation, nurture innovative capacity among firms through competition and financial support to local startups and talents, and promote information access, quality, and security. These three policy directions will require smart government interventions in close coordination with the private sector and in full transparency to avoid their capture by public and private vested interests.