Vietnam to exceed 6% growth target for 2021, say analysts

Singapore

ANALYSTS are upbeat on Vietnam's prospects in 2021, with forecasts in excess of the country's current official growth target of 6.0 per cent. Their optimism is bolstered by new trade agreements and global economic recovery, though contingent on successful Covid-19 containment and the roll-out of vaccines.

In a note released last Wednesday, UOB economists maintained their growth forecast of 7.1 per cent for 2021. Last Monday, a BofA Global Research report maintained an even higher forecast of 9.3 per cent growth, which it noted to be significantly stronger than consensus (7.7 per cent) expectations.

Vietnam's GDP growth accelerated to 4.48 per cent year-on-year (yoy) in Q4 2020, from 2.69 per cent yoy in Q3 2020, ahead of expectations. This pushed its full-year growth to 2.91 per cent in 2020 - one of the highest globally, with few economies managing to secure positive growth during the pandemic year.

After the Q4 data was released, Prime Minister Nguyen Xuan Phuc said the country's official growth target of 6.0 per cent for 2021 could be raised to 6.5 per cent. Vietnam's latest five-year socio-economic development plan (2021-25) sets an average annual growth target of 6.5 per cent to 7.0 per cent.

Alongside the cyclical recovery in the global economy, several stars appear to be aligning for Vietnam.

First, a series of new free trade agreements: the EU-Vietnam Free Trade Agreement took effect in August, while the Regional Comprehensive Economic Partnership agreement was signed in November. In December, negotiations concluded on the Vietnam-UK Free Trade Agreement. These new deals are expected to further enhance access to key external markets, even as Vietnam continues to benefit from supply chain relocations.

Second, the normalisation of the domestic economy, including the return of private consumption, as the Covid-19 shock continues to taper.

Vietnam was able to quickly and successfully contain the pandemic in the first half of last year, allowing business activities to gradually resume. Though a number of countries are facing second or third waves, with new and potent variants of the virus now emerging, vaccines are also on their way.

On Jan 4, deputy health minister Truong Quoc Cuong announced that Vietnam has agreed to buy 30 million doses of the AstraZeneca vaccine - which can vaccinate 15 million people - and is in talks with other producers, including Pfizer and Russia's Sputnik V.

Other factors in Vietnam's favour include the government's efforts in digitalisation and e-commerce, and an abundant and increasingly educated workforce.

Entering 2021, a key event ahead will be the Communist Party of Vietnam's 13th National Congress, to be held from Jan 25 to Feb 2. The 13th Congress will appoint key leaders and establish the party's agenda for the next five to 10 years. Subsequently, National Assembly elections will be held in May.

Positions up for renewal include the post of general secretary and de facto top leader. This is currently held by Nguyen Phu Trong, the President of Vietnam. Nevertheless, observers do not expect major shake-ups to medium-term policies or goals.

Rather, they say what will be key is the effective containment of the pandemic, and the rolling out of vaccines. For instance, UOB's growth forecast takes a base case scenario (ascribed a 60 per cent probability) of an effective rollout of vaccines in H1 2021, with social distancing measures gradually reduced from H2 2021, culminating in Covid-19 containment by Q4.

UOB's report also noted that Vietnam's vaccine purchases will strengthen the country's capability to control local infections, but that it "remains to be seen how fast the deployment could take place due to supply constraints, logistics challenges, and domestic health care infrastructure".

• A version of this article first appeared on aseanbusiness.sg.