Standard Chartered lowers Vietnam’s growth forecast to 2.7 percent

Hanoi (VNA) - Standard Chartered Bank has revised down its GDP growth forecasts for Vietnam from 4.7 percent to 2.7 percent for 2021, but remains bullish on the country's economic prospects over the medium and long term.

The lender projected that Vietnam's economic growth would bounce back and recover in Q4 after opening back up. Enterprises and business activities of the country's economy are expected to expand by 7 percent next year.

Tim Leelahaphan, Economist for Thailand and Vietnam, Standard Chartered said, “While we expect growth to start recovering in Q4-2021, this hinges on progress towards reopening businesses. We continue to expect a post-COVID growth acceleration but turn more cautious pending clearer signs of recovery. Vietnam’s pandemic management is crucial to the near-term outlook.”

The economist anticipated that the State Bank of Vietnam (SBV) will keep its policy rate on hold at 4.0 percent to support credit growth and remain vigilant against inflation risks, which are driven by supply-side factors.

Standard Chartered saw downside risks to its growth forecast – and a potential interest rate cut – if the economic impact of Vietnam’s COVID outbreak lasts beyond October. Such a scenario could affect the external position. An extended outbreak with containment measures in place for a longer period of time could have both short-term and longer-term effects on Vietnam’s economy. This would exacerbate vulnerabilities such as rising inflation and limited fiscal room for development. However, according to this bank, Vietnam’s external position is resilient in both the short and medium term.

Previously, in September, Standard Chartered Bank lowered its GDP growth forecasts for Vietnam to 4.7 percent from 6.5 percent for 2021 and 7.0 percent from 7.3 percent for 2022 due to softening economic indicators, the worsening pandemic and a still-slow vaccination rollout.

In a report released on October 4, Singapore-based financial service supplier DBS predicted that Vietnam’s economic growth may reach 8 percent in 2022 thanks to increasing FDI, exports and digitalization impetus.

On October 3, the Vietnamese Ministry of Planning and Investment estimated the country's GDP growth in 2021 at 3-3.5 percent. This is down 0.5 percentage points from September’s forecast.

Vietnam’s GDP dropped by 6.17 percent in the third quarter. In the first nine months, the GDP grew by 1.42 percent compared to 2.12 percent in the same period last year.

The GDP growth last year was 2.91 percent, the lowest in a decade. However, Vietnam was one of only a few countries in the world to achieve positive growth.

At a recent cabinet meeting, Prime Minister Pham Minh Chinh emphasized that this year's economic growth will largely depend on fourth quarter production and business recovery, as well as safe adaptation and pandemic control.

He requested that the Ministry of Planning and Investment quickly formulate a strategy to restore and develop the economy in the "new normalcy."

Earlier, on September 23, the Asian Development Bank (ADB) revised its forecast for Vietnam to 3.8 percent from 5.8 percent. The bank also predicted that Vietnam’s economy would recover and expand 6.5 percent in 2022 if the pandemic is brought under control late this year and 70 percent of its population is vaccinated against COVID-19 by the second quarter of next year.

The ADB is still optimistic about Vietnam’s mid-term and long-term growth outlook.

In the latest edition of Taking Stock, the World Bank said that Vietnam’s GDP is expected to grow by about 4.8 percent in 2021. The biannual update was released on August 24. This forecast offers a projection two percentage points lower than the previous one, made by the World Bank Group in 2020. It accounts for the negative impacts of the ongoing COVID-19 wave on economic activity.

While downside risks have increased, economic fundamentals remain solid in Vietnam. The economy could converge toward the pre-pandemic GDP growth rate of 6.5 to 7 percent from 2022 onward./.