VEPR: Vietnam’s GDP likely to grow 3.8 percent this year in best scenario

Hanoi (VNA) – Vietnam’s economic growth rate this year could reach 3.8 percent if there is no new COVID-19 outbreak in the second half of the year and economic activities gradually resume, the Vietnam Institute for Economic and Policy Research (VERP) has predicted.
 
The forecast was released at the launching of an independent assessment of Vietnam’s macroeconomic performance by VERP held in Hanoi on July 21.
 
Vietnam is one of the few countries to have achieved positive economic growth in the second quarter of 2020, reaching 0.36 percent. For the first six months of the year, GDP increased by 1.81 percent.
 
In the difficult period, agriculture has been a highlight of the economy in the first half of the year, contributing 12 percent to the overall growth, double the same period last year.
 
In addition, the second contributor was manufacturing and processing, which contributed about 5 percent of the overall growth. This was partly due to public investment and construction activities still occurred in the process of social distance.
 
With social distancing order lifted earlier than expected, the growth forecasts are also higher than previous figures, said Pham The Anh, chief economist at VERP.
 
“It is likely that the economy will reach 3.8 percent for the whole year 2020. At a lower probability, the economy may grow only 2.2 percent due to adverse developments of the COVID-19 pandemic,” Anh said, adding that the optimistic scenario of 5 percent is unlikely.
 
He noted that Vietnam's economic prospects in 2020 would depend on the ability to control the disease, not only domestically but also in the world.
 
Given different factors affecting the Vietnamese economy, the VERP provided two scenarios for the economy. In the first scenario, the institute forecast that COVID-19 would be brought under control domestically for the rest of the year and economic activities would gradually return to normal. But, in many important economic and financial centres around the world, the pandemic is assumed capable of a recurrence, or not confident enough that countries must extend lockdowns to the second half of the third quarter. This would affect the demand for importing goods from Vietnam and as well as for tourism and accommodation in the country.
 
Accordingly, the impact of COVID-19 on agriculture, forestry and fishery, manufacturing and processing and services would be more serious. In general, growth in industries would be modest, in which the most affected sectors would include accommodation, catering, mining and real estate. Therefore, the VERP predicted the economic growth at 3.8 percent for the full year.

The Vietnam Institute for Economic and Policy Research (VERP) hosts the launch of an independent assessment of Vietnam’s macroeconomic performance in Hanoi on July 21. (Photo: VietnamPlus)

 
In another scenario, if COVID-19 in major economic and financial centres in the world continues, countries may have to extend lockdown until the fourth quarter of 2020. As a result, Vietnam's import and export activities would be seriously affected and not be able to recover in 2020, leading to the weak growth of domestic production and declining supporting industries.
 
At the same time, accommodation and catering services have no momentum to recover due to a lack of foreign tourists, while domestic demand for these services is also limited due to the poor economic situation, leading to a GDP growth forecast of 2.2 percent.
 
Anh went on to say that factors that support the growth in the second half of the year included expectations on economic prospects due to the enforcement of the European Union-Vietnam Free Trade Agreement (EVFTA), disbursement progress of public investment projects, investment waves into Vietnam and a stable macroeconomy.
 
However, Vietnam has also been facing many challenges in the unstable world economic environment and uncertain future. The recurrence of COVID-19 in many countries was accompanied by lockdown measures, making for a lengthier break of the supply chains, while geopolitical conflicts among large countries could make an open economy like Vietnam face unexpected risks, the chief economist explained.
 
In addition, the weakness of Vietnam's economy also came from internal risks such as large fiscal imbalance, the speed and level of development investment and infrastructure building slowdown, he continued.

Although the health of the banking and financial system had been gradually strengthened, it was still vulnerable, according to the experts. The economy was much dependent on the growth of the FDI sector and the lack of technological and raw material autonomy.
 
The VEPR also made policy recommendations to help Vietnam boost economic growth this year, for example, the government should cut mandatory fees for enterprises and offer them tax reductions and deferrals which are believed to be more effective than cash aid./.