Vietnam’s GDP growth is expected to be in the range of 5-5.5% this year, depending on the speed and effectiveness of the vaccine rollout, the re-opening of the economy, the recovery and resumption of major export markets given the challenges posed by Delta variant.

Production at New Wing Company in Van Trung Industrial Park, Bac Giang Province. Photo: Minh Linh

This was one of the two growth scenarios drafted by HSBC Vietnam CEO Tim Evans in his note on Vietnam’s economic outlook for this year.

While Evans acknowledges it is not feasible to expect a totally normalized environment in the near future, he said the Vietnamese authorities are already talking about a gradual opening up of the economy. “We forecast that this will start to gather pace from October onwards,” he said.

“As in other markets, there tends to be a strong bounce back in economic activity at the time of reopening and we anticipate a similar outcome in Vietnam,” he added.

According to Evans, consumption will bounce back sharply once the current Covid-19 wave subsides. In addition, the State Bank of Vietnam (SBV) has introduced reforms lately to help support the economy. It has increased credit growth for some commercial banks from an earlier 10-12% to 14-15% for this year. Evans expected consideration may be given for a further increase to support the corporate sector.

Meanwhile, as the economy starts to reopen, supply chain challenges should subside, orders will rekindle and FDI should resume its cadence given stable government with consistent policies, hardworking/resilient workforce, a large number of Free Trade Agreements (FTAs), and a commitment from the government to spend around 7% of GDP on continuing to develop infrastructure.

“Despite the current environment, Vietnam remains a highly attractive investment destination in the medium term,” he said.

As more economies in the region start to open up on the back of large-scale vaccine rollout, this, coupled with the ongoing demand from Europe and North America, should see positive impacts on the exports of technology-related products, machinery, footwear, garments, furniture, food & agricultural products, he added.

“The pandemic has accelerated the trends of automation and digitalization and therefore Vietnam stands to benefit from this as a significant global producer of tech-related products,” he continued.

Vietnam’s strong fundamentals remain and the country has built an enviable position in the global supply chain over the past years through its set of FTAs. Strong forex reserves coupled with a stable currency, inflation is under control, continued strong FDI inflows with an emphasis on the manufacturing sector, will all position Vietnam for the future.

In another scenario, Evan said if the vaccination program is not fast enough and lockdown and social distancing continue to be lengthened, there will be more adverse impact to the economy and there will be increased pressure on supply chains and GDP may only reach 3.5-4%.

Either scenario, the economy needs to be re-opened, though, in a cautious and systematic way, he said.

HSBC in its global report revised down Vietnam’s GDP growth forecast to 5.1%. The bank, however, is forecasting a GDP growth of 6.8% for Vietnam in 2022 with a bullish outlook for the mid and long term.