Vietnam’s economy is set to return to solid growth of 6.5% in 2022, although the spread of Omicron poses risks locally and globally.

Cargo handling for export at Dinh Vu port, Haiphong. Photo: Pham Hung

The growth rate would be in line with the Vietnamese Government’s target of 6.5-7% for this year, indicating the country’s positive economic outlook after two years facing severe consequences from the pandemic.

“After concluding 2021 with a firm rebound from its worst contraction, we believe Vietnam is set to return to a firm broad-based growth track,” economists Yun Liu and Heidi Tang at HSBC gave the remarks in a recent note.

Vietnam posted strong GDP growth of 5.8% in the fourth quarter of 2021, overshooting market expectations for moderate growth (HSBC: 3.8%; Bloomberg: 3.9%), for which both Yun and Heidi attributed the growth to quick improvement of manufacturing productivity and record-high export turnover.

“Services have also rebounded, but the recovery remains uneven,” they added.

For this year, the HSBC experts suggested manufacturing and exports to continue leading the economic recovery, partly supported by resilient FDI commitments.

On the other hand, domestic demand will likely further recover as lingering restrictions are gradually phased out and the labor market revives.

That said, the biggest growth headwind to bear in mind is the current fifth Covid-19 wave, not least with the highly transmissible Omicron variant, they said.

After dropping to November’s lows of 4,000, the number of daily infections has soared again, jumping to over 20,000 as of late.

Unlike the last time when Ho Chi Minh City was the epicenter of the fourth Covid-19 wave, cases, mostly from the Delta variant, have been spreading out, from Hanoi and Haiphong in the north to central and the Mekong Delta provinces.

“The good news is that Vietnam is in a better vaccine position to protect itself from imposing another lockdown,” they stated, as the country has fully vaccinated 70% of its population by end-2021, with a focus on its booster drive.

HSBC also predicted Vietnam’s inflation to grow 2.7% in 2022, below the State Bank of Vietnam’s (SBV) 4% inflation ceiling.

“While inflation is unlikely to be a main concern for the central bank in 2022, the health of the real estate market may come into greater focus,” they added.

Vietnam remains beneficiary of shifting supply chains

In a more positive assessment, experts at Fitch Solutions, a subsidiary of Fitch Group, forecast Vietnam’s economy to grow 7% in 2022, saying the country’s strong economic performance at the end of 2021 proved “that the economy is on the recovery path” and would continue to expand throughout 2022.

“While the Covid-19 outbreaks could continue to dampen activity, we believe the rapid rollout of vaccines and a gradual shift to a softer approach to managing outbreaks suggests the economy will be more resilient to the threat of Covid-19 in 2022,” it suggested.

As more of the population is vaccinated and the population’s concerns about being exposed to Covid-19 ease, Fitch Solutions expected retail activity to bounce back.

In 2021, the major drag on retail sales proved to be consumption of services, with sales of accommodation, food, and beverage services declining 19.3% year-on-year and tourism services down 59.9%.

“Consumption of these services should pick up activity in 2022 as restrictions ease and favorable base effects from the lockdown in the third quarter of last year should also buoy growth readings in the second half of 2022.”

Meanwhile, manufacturing will also benefit from the normalization of activity. The sector has previously struggled with employment shortages, as workers continued to avoid returning to cities and manufacturing hubs due to Covid-19 concerns.

“With vaccination rates higher we do expect this issue to ease in 2022, but note that the spread of Omicron could delay the process,” it continued.

Fitch Solutions also suggested construction activity should also recover through 2022. "The relaxing of domestic restrictions will prove a boost and we expect some easing of border restrictions to boost foreign direct investment in 2022,” it said. 

“We continue to flag Vietnam as a beneficiary of shifting supply chains, particularly in regards to low value-add manufacturing relocating out of China. This should boost infrastructure investment activity,” Fitch Solutions noted.