Vietnam's economic growth forecast for the 4th quarter of 2020 and 2021: Will recover in a V-shape, in 2021 it will increase by about 6.5 - 7%

TS. Can Van Luc and the authors of BIDV Institute of Training & Research have just released the report Vietnam Economic Growth Forecast for the 4th quarter of 2020 and 2021. We would like to publish the report verbatim for readers to follow.

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Vietnam's economy in 2020 has gone more than 3/4 of the way, the economic picture for the whole year has been depicted quite clearly. In the context of a deep recession in the world economy, Vietnam's economy in 2020 and beyond will also be negatively impacted by both the supply and demand sides.

Along with the above results and the internal strength of the economy plus external challenges (such as the development of the Covid-19 epidemic, the economic recovery of partners, the possibility of natural disasters and negative weather conditions), we assess Vietnam's economic growth prospects according to 3 scenarios (base, positive and negative) and the results show that Vietnam's economy can reach a growth rate of 2.36-3.9% in the 4th quarter of 2020. contributing to growth of 2-3% in 2020 and creating a foundation for economic recovery and rapid growth in 2021 (about 6.5-7%).

Next: Report on Vietnam's economic growth scenario in 2020 (July 2020); TS. Can Van Luc and the authors of BIDV Institute of Training & Research conducted the Vietnam Economic Growth Forecast Report for the 4th quarter of 2020 and 2021 to assess Vietnam's economic situation by economic sector in 9 months at the beginning of the year and updated Vietnam's economic growth scenario in the 4th quarter of 2020, both in 2020 and 2021, along with a number of recommendations.

1. Vietnam's economy has recovered clearly from the 3rd quarter of 2020

From the beginning of 2020 until now, the Covid-19 pandemic has been complicated and unpredictable; pushing the world and many countries into a double crisis of health and economy. The world economy has fallen into recession; the latest report of the IMF and the World Bank (10/2020) forecasts that the world economy in 2020 will decline (-4.4 to -5.2%). In addition, UNCTAD forecasts that global FDI will decline by about 25-30%; The WTO (10/2020) forecasts that world trade will decline by about 9.2% in 2020. Global inflation in 2020 is forecast to be low (1.8-2%) due to weak demand, a sharp decline in oil prices and a low level.

Domestically, Vietnam's economy after 9 months has shown clear signs of recovery in a V-shape with the bottom being the 2nd quarter of 2020 after the Covid-19 epidemic was controlled through 2 outbreaks (March and July). In Q3/2020, all three economic sectors recovered clearly from the bottom in Q2 with GDP growth estimated at 2.62% in Q3/2020, higher than the increase in Q2 (0.39%). Accumulated in the first 9 months of 2020, GDP increased by 2.12% over the same period in 2019; in which:

(i) The agriculture, forestry and fishery sector in the 3rd quarter increased by 2.93% over the same period (much better than the increase of 0.04% in the 1st quarter and 1.8% in the 2nd quarter), helping to accumulate an increase of 1.84% in the first 9 months of the year (lower than the increase of 2.02% in the same period last year); contributing 13.62% to the overall growth rate.

(ii) Although the industrial and construction sector continues to face many difficulties, in the third quarter of 2020 it increased by 2.95% (higher than the increase of 1.69% in the second quarter), helping to accumulate 3.08% in the first 9 months of 2020 (lower than the same period of 9.36% in 2019) and contribute p 58.35% to the overall growth rate.

(iii) The service sector, although negatively affected by the epidemic, showed strong signs of recovery, increasing by 2.75% in Q3 (compared to Q2 minus -1.93%); helping to accumulate 9 months increased by 1.37% (much lower than the increase of 6.85% in the same period last year); contributing 28.03% to overall growth.

Economic growth forecast for Q4, both 2020 and 2021

In the 4th quarter of 2020 and 2021, the world economy continues to face 4 main risks and challenges : (i) The Covid-19 epidemic is still complicated and unpredictable, always posing the risk of the next wave of outbreaks; (ii) US-China trade and technology tensions and between other major countries; (iii) Geopolitical risks in countries and regions (including the results of the US presidential election, Brexit negotiations, Sino-Indian relations, the South China Sea issue, etc.); and (iv) the risk of global financial instability. 

Updated reports of international organizations such as IMF, WB, OECD, ADB (10/2020) ... all said that the world economy in 2020 had a serious recession (-4.4% to -5.2%), before recovering and rebounding in 2021 (+3.5% to +5%). However, the recovery largely depends on 3 factors: (i) the effectiveness of Covid-19 prevention and control and the process of production, distribution and use of vaccines; (ii) the effectiveness of the support packages; and (iii) international cooperation in epidemic prevention and economic recovery.

Domestically, on the basis of the results of the implementation in the first 9 months of the year along with the Government's consistent implementation of the dual goals (both effective epidemic prevention and control, as well as socio-economic recovery and development), As mentioned above, it is forecasted that Vietnam's economy will recover in a "V" shape from the bottom in Q2/2020, regain growth momentum from Q3/2020 and grow well in 2021. Accordingly, the authors forecast Vietnam's economy to grow by 2-3% in 2020 (likely to be 2.5%) and about 6.5-7% in 2021. This forecast level is also quite similar to the latest forecast of international organizations (IMF, WB, ADB...) which is that Vietnam's economy will grow from 1.6-2.8% in 2020 and 6.3-7% in 2021; inflation was controlled at 3.5-3.8% in 2020 and below 4% in 2021 (Table 1).

On the basis of forecasting, in the updated report on the impact of the Covid-19 epidemic on Vietnam's economy in July 2020, a group of experts at BIDV Training & Research Institute forecasted Vietnam's economic growth in both the direction of aggregate demand and total supply with 3 scenarios (base, positive and negative). However, in this report, the authors forecast Vietnam's economic growth in the direction of total supply in the 4th quarter, both 2020 and 2021, still with 3 scenarios (base, positive and negative) based on the analysis, forecasts on: (i) the development of the Covid-19 epidemic in the world and in Vietnam, (ii) the resilience of the world, regional economy and Vietnam's main trade and investment partners, (iii) the recovery prospects of economic regions, (iv) the possibility of negative impacts of natural crabs and epidemics on the Agriculture – Forestry – Fisheries sector.

With the baseline scenario (high possibility), in case the epidemic is well controlled globally and Vietnam, the Government will consistently and drastically implement the dual goal; the situation of natural disasters and floods in the Central region will soon be overcome, minimizing damage to people and property, agriculture will continue to be a support, ensuring food security and contributing positively to overall growth. Accordingly, it is forecasted that economic growth in the 4th quarter of 2020 can reach 3.28% over the same period last year, helping GDP growth for the whole year 2020 reach 2.5%; in which, the agriculture, forestry and fishery sector grew by about 3.16% in the 4th quarter compared to the same period last year (and increased by 2.28% for the whole year 2020); the industrial and construction sector grew by 3.7% in Q4 (3.16% for the whole year 2020); and the service sector grew by 3.58% in Q4 (2.08% for the whole year 2020).

With a positive scenario (low possibility), the Covid-19 pandemic is basically controlled in the world in the 4th quarter of 2020; countries applying the "new normal", both recovering the economy, reopening and maintaining trade, production and business activities, and effectively preventing and controlling the epidemic, starting to have vaccines from the end of 2020. In Vietnam,  the epidemic was controlled and actively supported by the spread of important partner economies (China, South Korea, Japan, the US, the EU and ASEAN...) recovering quickly from the Covid-19 epidemic;  trade activities were reopened from the end of the 4th quarter of 2020. 

At that time, production, processing and manufacturing activities, especially machinery, equipment, electricity, and electronics, still grew quite well, and the garment, leather and footwear industries recovered quickly, ... to meet the needs of partners; services have recovered quite well thanks to the gradual restoration of consumer confidence, natural disasters have been quickly overcome thanks to the participation of the Central Government, ministries, branches, localities, social organizations and sponsors...; Agriculture still plays an important role in stabilizing food security and economic growth. According to this scenario, Vietnam's GDP growth is forecast to reach 4.82% in the 4th quarter of 2020 and 3% for the whole year 2020. 

With a negative scenario (low possibility), the Covid-19 pandemic has many strong outbreaks in many parts of the world and is difficult to control in the Winter-Spring 2020-2021 season; In addition, escalating trade-technology and geopolitical tensions, not finding a solution soon will cause international trade and investment to decline, pushing the world economy into an uncertain state. the ability to recover the global economy is low (in an inverted M shape). In Vietnam, the epidemic continues to be controlled, but exports and FDI investment attraction continue to be difficult due to the outbreak of the epidemic again in major partner countries, production and export of agricultural products are difficult, tourism, transportation - warehousing, consumption recovery is slow, etc. At that time, Vietnam's GDP growth forecast was only 1.74% in the 4th quarter and about 2% for the whole year 2020 (Figure 1). 

For 2021, the authors develop a forecast for Vietnam's GDP growth depending on the likelihood and severity of the occurrence of five factors (baseline scenarios): (i) The situation and ability to control the epidemic in Vietnam and other countries in Q1/2021; the Covid-19 vaccine has been widely produced since the end of the 2nd quarter of 2021 and Vietnam has access to the vaccine at the end of 2021?; (ii) The level of trade and technology tensions in 2021 and the progress of international cooperation by region, bloc and group of countries; (iii) The extent of economic recovery of key partners; (iv) The situation of natural disasters and other epidemics in Vietnam and the extent of its impact on the life and production and business of people and businesses, and (v) Based on the relatively low growth background of 2020 as well as the trend of Vietnam's economic restructuring.

Accordingly, Vietnam's economic growth forecast in 2021 can reach 6.5-7%. In which, the Agriculture - Forestry - Fisheries sector grew by about 2.3-2.8%; the Industry and Construction sector grew by 8.5-8.8% (almost equivalent to the growth rate before the Covid-19 epidemic); and the service sector grew by 7.6-8.1% compared to the previous year.

Thus, depending on the development of the Covid-19 epidemic in Vietnam and in the world, the efforts and determination of both the political system and the people, Vietnam's economy is likely to achieve a growth rate of about 2.5% in 2020 (according to the baseline scenario, with a growth rate in the 4th quarter of 2020 of about 3.28%); and can recover strongly with a growth rate of about 6.5-7% in 2021 (base scenario);  Average inflation is forecast at 3.5-3.8% in 2020 and may increase slightly to 3.6-3.9% in 2021.

Recommendations and conclusions:

The 4th quarter of 2020 and 2021 will be an important time for Vietnam's economy, because well implementing socio-economic development goals will be a solid foundation, creating momentum for breakthroughs and implementing the Socio-Economic Development Strategy for the 2021-2030 period. Although this is still a difficult period because Vietnam has to overcome the negative impacts of the Covid-19 pandemic, on the other hand, this is also an opportunity if we take advantage of the trends, New opportunities are created from this pandemic itself. 

Therefore, in order to realize the ability to achieve economic growth and control inflation in the 4th quarter of 2020 and the whole year of 2021 as mentioned above, the Government needs to consistently implement the dual goals: both effectively prevent the Covid-19 epidemic and restore and develop the socio-economy. At the same time, it is necessary to drastically implement other groups of solutions as proposed by the Expert Group in previous reports such as: (i) accelerating the implementation of support packages (including batch packages)  2, if any), (ii) promoting exports to key markets immediately after the epidemic is controlled, also taking advantage of opportunities from FTAs such as CPTPP, EVFTA, (iii) continuing to prioritize accelerating the disbursement of public investment (but still ensuring quality), (iv) strongly promote the private economic sector, (v) promote the stimulation of domestic market demand, (vi) promote the strengths of growth pillars and locomotives such as Hanoi, Ho Chi Minh City. Ho Chi Minh City, (vii) accelerate the development of the digital economy, digital society and e-Government, and (viii) continue to strongly and substantially improve the investment and business environment in order to remove barriers and attract FDI inflows.

TS. Can Van Luc and the BIDV Institute of Training and Research Authors

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