The growth forecast for 2022, however, is sustained at 6.5%, as expanding vaccination coverage may accelerate GDP growth, noted the ADB in its latest Asian Development Outlook Supplement.

Production of stationery at Hong Ha Company, Long Bien District. Photo: Chien Cong

Vietnam’s GDP contracted by 6.2% in the third quarter under severe Covid-19 impacts. This dragged GDP growth in the first nine months of the year to a historic low of 1.4%.

Underemployment dampened domestic demand, as did slow social support, and a harsh lockdown caused labor shortages in Ho Chi Minh City and surrounding provinces.

Trade sustained growth with a modest surplus of US$225 million in the first 11 months. Rapid vaccination in September and October presumably slowed the spread of the virus, but the sharp rise of new cases still forced some provinces to reinstate lockdowns.

Meanwhile, the prospect of a strong economic rebound in the final quarter is clouded by high Covid-19 infection rates, continued mobility restrictions in some provinces, and limited labor supply in key cities. Further, sluggish disbursement of public investment will hinder its intended boost to domestic demand.

On the other hand, subdued demand will hold inflation at 2.2% in 2021, less than the earlier forecast, but the projection for 2022 is revised up to 3.8% on expected volatility in global price movements and possible weakening of the Vietnam dong (VND) against the US dollar if a front-loaded response to heightened inflation in the advanced economies induces capital outflow, stated the ADB.

Covid-19 emergence remains risk for regional outlook

A grim outlook is also seen in the region as the ADB revised its economic growth outlook for developing Asia down to 7% in 2021 and 5.3% next year, compared to the September forecasts of 7.1% growth for 2021 and 5.4% for 2022.

“Developing Asia’s steady progress in dealing with Covid-19, through continued vaccination drives and more strategic application of containment measures, helped boost growth prospects in the early part of the year,” said ADB Acting Chief Economist Joseph Zveglich, Jr. “However, new outbreaks in the third quarter muted gross domestic product growth, and the advent of the Omicron virus variant is causing renewed uncertainty. Recovery efforts will have to take these developments into consideration.”

In this context, Southeast Asia’s 2021 outlook has been revised down by 0.1 percentage points to 3.0% as economies in the subregion imposed targeted restrictions in the face of Covid-19’s Delta variant. Next year’s growth forecast is increased to 5.1% as economies are expected to continue easing overall restrictions and reviving economic activities.

Regional inflation is expected to remain manageable at 2.1% in 2021 and 2.7% in 2022, allowing for a more accommodative monetary policy and supporting pandemic recovery efforts.

The main risk to the growth outlook remains a resurgence in Covid-19 cases. The average number of daily cases globally rose to almost 573,000 on November 30 from 404,000 on October 15. Developing Asia’s vaccination rate has increased significantly to 48.7% (fully vaccinated) as of November 30, although the region still lags behind the US at 58.1% and the EU at 67.2%. Rates of fully vaccinated people also vary widely within the region, from as high as 91.9% of the total population in Singapore to as low as 2.2% in Papua New Guinea.