Economists trim forecasts after Vietnam Q1 growth disappoints, but outlook still bright

ECONOMISTS lowered their full-year gross domestic product (GDP) growth forecasts for Vietnam after a disappointing first quarter showing, though prospects for recovery remain strong.

Vietnam's GDP grew 4.48 per cent in the first quarter of 2021, steady from the preceding quarter and falling short of the consensus forecast of 5.7 per cent.

UOB's forecast was lowered to 6.7 per cent from 7.1 per cent previously, though head of research Suan Teck Kin noted: "Despite the downgrade, Vietnam is still one of the few economies in the world to record back-to-back expansion this year." The revised forecast assumes an average 7.5 per cent growth in the remaining three quarters.

Maybank Kim Eng economists Linda Liu and Chua Hak Bin lowered their forecast to 6.5 per cent from 6.8 per cent previously. "Recovery will likely continue to be supported by the improving manufacturing and exports outlook, as well as recovery in FDI (foreign direct investment) inflows," they said.

Total registered FDI rose 18.5 per cent year on year to S$10.1 billion in Q1, while total implemented FDI was up 6.5 per cent at US$4.1 billion. Manufacturing accounted for nearly half of registered FDI. Singapore was the leading investor, with nearly US$4.6 billion during the quarter, followed by Japan with US$2.1 billion and South Korea with US$1.2 billion.

In the first quarter, services lagged at 3.34 per cent growth, weighed down by movement restrictions amid the Covid-19 pandemic. Industry and construction grew 6.3 per cent - on the back of strong manufacturing growth - while the agriculture, forestry and fishery sector grew 3.16 per cent.

The Maybank economists noted that based on preliminary estimates, exports had a solid growth of 19.2 per cent in March, led by machineries, and computer and electronics. Exports to most major markets rebounded, led by the United States and the European Union. While exports to China grew by a slower 17.9 per cent in March, down from 22.3 per cent in February, China remains the largest growth export driver in the first quarter.

For the full year, Vietnam's official growth target is 6 per cent. The World Bank's last projection for Vietnam on March 25 was for 6.6 per cent growth.

Mr Suan expects that the start of Vietnam's Covid-19 vaccination drive in March "will provide a much needed boost for the country towards normalcy, especially for services industries such as retail and travel/tourism".

But the Maybank economists flagged the slow procurement and roll-out of vaccines as a key risk, especially for the services sectors. So far, only 44,000 vaccine doses have been administered, amounting to only an estimated 0.05 per cent of the population having received at least one dose.